NATS Stipend DBT: Do Employers Need to Issue Form 16?

Statutory Genesis & Current Legal Posture

The National Apprenticeship Training Scheme operates under the Apprentices Act, 1961, read with the Apprenticeship Rules, 1992. Section 18 of the Apprentices Act provides that every apprentice undergoing apprenticeship training in a designated trade in an establishment shall be a trainee and not a worker. The provision further states that the provisions of any law with respect to labour shall not apply to or in relation to such apprentice .

The stipend structure under NATS has been revised effective April 1, 2026, with rates set at ₹9,600 per month for Technician (Vocational) Apprentices, ₹10,900 for Technician Apprentices (Diploma Holders), and ₹12,300 for Graduate Apprentices (Degree Holders) . The total minimum stipend is shared equally between the Government of India (50% disbursed through Direct Benefit Transfer to the apprentice) and the establishment (50% paid directly by the employer).

The government share has been payable only through DBT mode since November 1, 2025, as notified by the Board of Apprenticeship Training/Practical Training. The employer’s share must be disbursed monthly on the same payroll cycle as regular employees, with Proof of Payment of the establishment’s share required to be submitted monthly for the government to release the DBT portion.

Legacy Framework vs. Current Position

Parameter	Legacy Position (Pre-DBT)	Current Position (2026 DBT Regime)	Practical Operational Impact
Stipend Disbursement	Employer paid full stipend; government reimbursed 50% quarterly	Employer pays 50% share; government pays 50% directly via DBT	Employer no longer handles the government share; but remains responsible for payroll documentation
Form 16/130 Requirement	Required if TDS deducted from total stipend paid	Required only on employer’s share if TDS applies; no Form 16/130 for DBT share	Separate tax documentation for two components; apprentice must consolidate for ITR filing
TDS Deduction Responsibility	Employer deducts TDS on full stipend if threshold crossed	Employer deducts TDS only on its share; DBT share may not attract TDS	TDS liability reduced for employer
Tax Certificate Issuance	Single Form 16 for total stipend received	Employer issues Form 16/130 for its share only; no certificate for DBT amount	Apprentice must account for DBT amount separately in ITR
Record Keeping	Employer maintained full stipend records	Employer must maintain proof of payment of establishment share	Employer must submit monthly declaration letter with proof of its share payment

The Form 16/130 Obligation: A Nuanced Analysis

The Core Principle

The obligation to issue Form 16 (for FY 2025-26) or Form 130 (from TY 2026-27 onwards) arises under the Income-tax Act when an employer has deducted tax at source from salary payments. Form 16 has historically served as proof that tax has been deducted from salary and deposited with the government. From April 1, 2026, the Income-tax Act, 2025 has replaced the Income-tax Act, 1961, and Form 130 has been introduced as the successor to Form 16 for salary income . The fundamental obligation remains unchanged: if tax is deducted at source, a certificate must be issued.

The critical question is whether the NATS stipend constitutes “salary” for TDS purposes. Under Section 192 of the Income-tax Act, 1961, any person responsible for paying salary to an employee must deduct tax at source on that salary payment if the employee’s estimated total income is likely to exceed the basic exemption limit . The law applies where there is an employer-employee relationship and salary income is being paid . If the apprenticeship involves a structured training program where the apprentice contributes to the establishment’s work and receives a regular monthly payment, the stipend is treated as salary for TDS purposes.

Form 16 for FY 2025-26

For the financial year 2025-26, the Income-tax Act, 1961 continues to govern TDS compliance. Employers must issue Form 16 to all employees from whose salary tax has been deducted under Section 192. The employer’s share of the NATS stipend is paid directly by the employer and, if it exceeds the basic exemption limit, TDS may be applicable. If TDS has been deducted on this amount, the employer is obligated to issue Form 16 to the apprentice. This is an inescapable requirement under the law.

Even in cases where no TDS is deducted because the employer’s share falls below the exemption limit, the employer should still file NIL TDS returns to ensure the compliance chain remains intact and to enable the issuance of a NIL certificate for record purposes.

Form 130 for TY 2026-27

From Tax Year 2026-27, the Income-tax Act, 2025 has introduced Form 130 as the successor to Form 16 for salary income . Form 130 is more detailed and designed to provide complete and accurate information on income, deductions, and tax liability under the new consolidated framework. The obligation to issue Form 130 will apply to salary payments made from April 1, 2026, onwards.

For NATS apprentices, the analysis remains unchanged: the employer’s share of the stipend, if subject to TDS, must be reported through Form 130. Employers must update their payroll systems to generate Form 130 for salary income, including apprenticeship stipends.

The Government DBT Share: No Certificate from Employer

The government’s 50% share of the stipend is paid directly to the apprentice via DBT by the Board of Apprenticeship Training/Practical Training. This is not a payment made by the employer. No TDS is deducted by the employer on this portion. Consequently, the employer does not issue Form 16 or Form 130 in respect of the government DBT share. The apprentice must include this amount in their Income Tax Return as taxable income, but no TDS certificate for this portion will be forthcoming from the employer.

Operational Implementation Framework for HR & Legal Teams [FREE]

Phase 1: Determine Whether TDS Applies to the Employer’s Share

Step 1: Calculate the total annual employer’s share of the stipend. For a Graduate Apprentice, this is ₹6,150 per month or ₹73,800 per year. This amount alone is below the basic exemption limit of ₹3,00,000 under the new tax regime. However, the employer must consider all salary components and applicable deductions under sections 80C, 80D, and others to determine the correct TDS liability .

Step 2: Consider whether the apprentice has any other income. If the apprentice has no other income, TDS may not be required. However, the employer must still evaluate the estimated total income for the year, including all salary components, to determine if TDS is applicable .

Step 3: If the estimated total income exceeds the exemption limit, deduct TDS monthly under Section 192. The TDS is deductible at the time salary is paid or credited, whichever is earlier . The employer must calculate the annual estimated tax liability and divide it by the number of remaining months to determine the monthly TDS deduction .

Phase 2: Timely Payment and Record Keeping

Step 1: Disburse the employer’s share of the stipend monthly on the same payroll cycle as regular employees. This ensures the apprentice receives the payment on time and the employer’s records are consistent.

Step 2: Maintain proof of payment of the establishment’s share. This must be submitted monthly to the Board of Apprenticeship Training to enable the government’s DBT release. The Board has also introduced requirements such as mandatory APAAR ID for DBT Release of Payment requests on the NATS portal, effective March 30, 2026 . The submission typically requires a declaration letter on the organization’s letterhead, a list of apprentices, and proof of payment such as a certified bank statement showing apprentice payment details.

Step 3: Maintain accurate records on the NATS 2.0 portal. This includes attendance records, stipend payment confirmations, and contract details. The establishment’s obligations are operational: accurate onboarding data, timely stipend payment of its share, disciplined record-keeping on the portal, and clean contract closure.

Phase 3: Issuing Form 16/130

Step 1: If TDS has been deducted on the employer’s share, issue Form 16 to the apprentice by the statutory deadline. For the 2025-26 financial year, the Form 16 deadline is June 15, 2026. For TY 2026-27, issue Form 130 under the Income-tax Act, 2025.

Step 2: Even if no TDS is deducted, file NIL TDS returns to ensure the salary details are properly recorded in the TDS reporting system. This enables the generation of a NIL certificate if needed.

Step 3: Ensure both parts of the TDS certificate are accurately completed. For Form 16, Part A contains details of the employer and employee, including PAN, TAN, and a summary of tax deducted and deposited. Part B contains the detailed salary and tax computation. The employer must report all salary components, including the NATS stipend, in the certificate.

Phase 4: Apprentice Tax Filing

Step 1: The apprentice must include both the employer’s share and the government’s DBT share in their Income Tax Return. The employer’s share will be reflected in Form 16/130. The DBT share must be added separately.

Step 2: The apprentice must maintain records of the total stipend received, including bank statements showing DBT credits.

Penal Consequences, Inspection Triggers, and Corporate Liability

Non-Issuance of TDS Certificate

Where a person who has deducted tax at source fails to issue a TDS certificate, they are liable for payment of a penalty under the Income-tax Act. This penalty is in addition to any interest on late payment of TDS. The employer’s failure to issue Form 16/130 can also create compliance challenges for the apprentice, as they may not be able to claim credit for TDS deducted.

Inspection Triggers

The NATS portal and the Income Tax Department’s reporting systems are integrated. Discrepancies between TDS returns filed by the employer and the actual stipend payments can trigger scrutiny. The employer’s obligation to file monthly declarations and proof of payment of its share creates a transparent audit trail. Inaccurate data on the NATS 2.0 portal can lead to delays in DBT payments and potential penalties under the Apprenticeship Rules.

The “Full-Time Employee” Trap: A Separate Compliance Concern

A significant compliance concern exists where employers enroll full-time employees under NATS without obtaining written consent and then deduct the DBT amount from their salaries. This practice is illegal. Section 7 of the Payment of Wages Act, 1936 prohibits deductions from wages without specific written authorisation. The DBT is the employee’s entitlement, not an adjustment tool. Employers who engage in this practice are exposed to liability under the Payment of Wages Act and the Apprentices Act.

Strategic Advisory for Employers and Apprentices [FREE]

For Employers

1. Distinguish Between Employer Share and DBT Share: The employer’s Form 16/130 obligation extends only to the employer’s share of the stipend. The DBT portion is not your responsibility.
2. Maintain Proof of Payment: Submit monthly proof of payment of the establishment’s share to the Board of Apprenticeship Training. Failure to do so can delay DBT payments to apprentices.
3. Do Not Enroll Full-Time Employees as Apprentices: Enrolling full-time employees under NATS without explicit written consent and deducting the DBT amount from salary is a violation of the Payment of Wages Act. The employer faces civil liability, refund obligations, and potential prosecution.
4. Issue Form 16/130 Promptly: If TDS is deducted, issue the certificate by the statutory deadline. Even in NIL TDS cases, file NIL TDS returns to maintain the compliance chain.
5. Prepare for Form 130 Transition: From TY 2026-27, Form 130 replaces Form 16 for salary income. Ensure your payroll systems are updated to generate the new certificate.

For Apprentices

1. Do Not Assume the Stipend Is Tax-Free: The entire stipend (employer share + DBT share) is taxable income. No exemption applies under Section 10(16) as a matter of course.
2. Check Form 16/130: Verify that the employer has issued the correct TDS certificate for its share of the stipend. If TDS has been deducted, ensure the amount in the certificate matches your payslips.
3. Include DBT Share in ITR: The DBT share will not appear in Form 16/130. You must add it separately when filing your Income Tax Return.
4. Watch for Illegal DBT Deductions: If your employer deducts the exact DBT amount from your salary without consent, the deduction is prima facie impermissible under Section 7 of the Payment of Wages Act. Raise a written complaint immediately.

Disclaimer: This guide constitutes statutory commentary and operational analysis based on notifications, rules, and judicial precedents published up to the current date in 2026. The information provided is for general informational purposes only and does not constitute formal legal advice or create a lawyer-client relationship. Tax laws are subject to frequent amendments and differing interpretations. You are strongly advised to consult a qualified tax professional to obtain advice specific to your factual circumstances before implementing any of the compliance strategies discussed herein. The authors and publishers assume no liability for any actions taken or not taken based on the contents of this publication.