Is Alimony In India Taxable?

The world we live in is continuously changing every day. advancements are being made in businesses, technologies, and research, among other things. In a country where marriage is held sacred, the word “divorce” is just something that is unthinkable, for the most part.

One of the main reasons for the low divorce rates in our country India (13 in every 1000) is just because of the associated stigma that comes along with it. It is interesting to know that as per a BBC report of 2016, the number of individuals or people who got separated is almost thrice the number of people divorced.

In recent years, women getting access to better education, awareness regarding fundamental rights, and the fact that women have turned independent in a financial, mental, and physical sense as well, they are able to control their lives in a better manner. more women are able to stand up for themselves and even getting a divorce when they are being ill-treated or if they are unhappy with the marriage.

Is Alimony In India Taxable?

Post-divorce, the woman may also be legally entitled to receive maintenance under section 125 Crpc. 

Alimony

When a divorce or separation happens, the court may order the spouse to pay the other in the form of spousal payments, also known as alimony which is governed by the provisions under the Hindu Marriage Act, 1955 for Hindu or Muslim marriage Act 1986 for Muslim woman. These alimony payments are to be made based on the order of the court or by a mutual agreement entered into between both parties. In most cases, what happens is that one party may have given up a well-settled and promising career so that the family could be supported. This is ideally one of the reasons for the payment of alimony.

Types of Alimony

The court takes into account various parameters before directing alimony.

  •  Properties and other assets are owned by the wife and husband.
  •  Sources of income earned by the wife and the husband. 
  •  The period of the marriage.
  •  Age, health, social status, and the lifestyle of both the wife and the husband.  
  •  Other liabilities.
  •  Expenses for children’s education and upbringing.

Separation Alimony:

The divorce has not taken place in separation alimony. This is a case of pure separation only. During this separation, if one partner is incapable of maintaining her/his self, separation alimony may be ordered to be paid by a court of law. if the separation then leads to a divorce, so the kind of alimony will be changed to something other than separation alimony.

Permanent Alimony:

permanent alimony payments go on indefinitely. The reasons for this type of alimony are as follows:-

Where the recipient, prior to the marriage, had no history of employment or skills whatsoever, and post-marriage, has never worked but has undertaken the role of a homemaker. – The inability to maintain herself, due to reason of some level of disability or permanent incapacity.

Rehabilitative Alimony:

Rehabilitative alimony has no specific or particular time where it comes to an end; it generally depends on the situation of the Individual. It may be awarded where the spouse is not maintaining his/her self and children. A typical scenario could be the payment of alimony to the spouse until the children are able to maintain themselves or able to go to school. Rehabilitative alimony is normally reviewed at different intervals to check what the progress/most recent development is. The changes are made in accordance with the review of every situation.

Reimbursement Alimony:

Reimbursement means repayment, exactly what this type of alimony intends to do. Where one party has spent money to put the other party through college/school/an employment program resulting in the other party’s earnings increasing, the court may order to reimbursement alimony to be paid to half the amount spent or even the full amount

 Lump-Sum Alimony:

This alimony is a one-time payment. There’s no question of recurring payments in this case. The whole amount of alimony is paid in one shot itself in lieu of property or any other assets accumulated by the couple.

Is Alimony In India Taxable?

Taxability of Alimony

There is no specific provision of the Income Tax Act, 1961, that governs or regulates the taxability of alimony. Past judgments in various different scenarios have also helped us gain a better understanding of the same.

In case of a lump sum alimony payment:

Here, alimony is known as a capital receipt, and therefore, the provisions of the Income Tax Act, 1961 don’t apply. Hence it’s not treated as income and it is not taxable.

In case of recurring payments of alimony:

Alimony is considered as a revenue receipt in this case. Therefore, it is treated as income that is taxable in the recipient’s hands.

Alimony Paid Through Asset Other Than Cash

Any asset that’s transferred with no consideration before the divorce is exempted from tax within the hands of the recipient. The reasoning behind this is often that the asset so transferred are treated as a present received from relatives and thereby exempt as per the provisions of Section 56 (ii) of the tax Act, 1961.

However, post-divorce, the “relative” aspect of the transaction ceases to exist, and thus, such transfer is brought up as taxable within the hands of the recipient.

Further, as long as the marriage exists, any income earned from the asset transferred is clubbed together with the income of the spouse who transferred the asset. The recipient won’t have any tax implications during this case.

However, once the divorce has taken place and therefore the marriage ceases to exist, the next income earned thereon asset is going to be taxable within the hands of the recipient spouse only.