Alimony is a financial support paid by one spouse to another after separation or divorce. While it's often viewed as a personal matter, alimony has clear tax implications in India that both paying and receiving parties should understand. Here's how alimony is taxed under Indian law:
1. Lump Sum Alimony (One-Time Payment)
If alimony is paid as a lump sum amount—a one-time settlement rather than recurring monthly payments—it is not taxable in the hands of the recipient.
Why?
Because it is treated as a capital receipt and not as income under the Income Tax Act. Therefore, the recipient does not need to pay tax on this amount.
2. Recurring Alimony (Monthly Payments)
If alimony is paid periodically—usually every month—it is taxable for the recipient.
How?
The monthly alimony received is added to the recipient's total income and taxed under the head "Income from Other Sources." The recipient must declare it while filing their income tax return.
3. Alimony in the Form of Assets (Property, Shares, etc.)
Sometimes, alimony may be given in the form of assets like property, stocks, or jewelry. Here's how taxation works in such cases:
A. Transfer Before Divorce
If the asset is transferred before the divorce is finalized, it is considered a gift from a relative (i.e., the spouse). According to Section 56(2)(x) of the Income Tax Act, gifts received from a "relative" are exempt from tax. So no tax is applicable to the recipient.
B. Transfer After Divorce
Once the divorce is finalized, the husband and wife are no longer “relatives” under tax laws. This creates a tax grey area:
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If the asset is transferred after divorce, and not as part of a court-ordered settlement, it may be considered a taxable gift under Section 56(2)(x).
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However, if the transfer is made as part of a court decree or legally recognized alimony arrangement, it won’t be treated as a taxable gift, and Section 56(2)(x) will not apply.
4. No Tax Deduction for the Payer
Here’s the kicker: The spouse who pays alimony does not get any tax benefit.
Whether it’s a lump sum or monthly payment, no deduction is allowed to the payer under the Income Tax Act—unlike in some countries like the U.S. (prior to recent changes).
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