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Taxability of Alimony in India

Dated: June 12, 2020

Legal termination of a divorce by the Court in a legal proceeding is a divorce. It can be a challenging and emotional period for both the parties involved. But the problems are not only limited to emotional but also include financial matters as well. Generally, it is the obligation of husband to maintain his wife. Around this obligation the husband has to pay an amount to his wife, in the form of maintenance or alimony. In here, we will be discussing about the taxation of alimony in accordance with the relevant laws.

While maintenance is the monthly payment of a specific amount decided by the court, to the spouse, alimony on the other hand is one-time settlement amount paid to the spouse. Alimony is an extension of the husband’s obligation under Hindu Law to maintain his wife.

Though alimony is a one-time settlement, it can be paid in a periodic manner as well owing to the circumstances of the case. 

The question which arises now, is whether the amount received in alimony is taxable or not? And can the person paying the alimony claim any deduction on the same?

Alimony has nowhere defined or covered under the taxable income in the Income Tax Act, 1961. The Income Tax Act does not contain specific provisions relating to Alimony. Relevant case laws and sections have to be interpreted in order to understand the taxability of alimony.

In order to understand all of this in detail, first we need to understand the difference between the Capital Receipt and Revenue Receipt. The Income Tax Act, 1961 though does not define tax receipt and revenue receipt, generally, all revenue receipts are taxable unless as exempted by the Act and all Capital receipts are not taxable unless as provided by the Act.

Capital receipts are non-recurring, while revenue receipts are recurring (or expected) after a specific period of time. Capital receipts arise from activities which are occasional or not of routine nature. While the revenue receipt being the opposite, occurs on a recurring basis after every specific interval of time.

In the cases of Princess Maheshwari Devi of Pratapgarh vs CIT (1983) 33 CTR Bom 117, ACIT vs. Meenakshi Khanna (ITAT DELHI), Shrimati Roma Sengupta Vs. CIT (Calcutta High Court), Prema G. Sanghvi Vs. ITO (ITAT Mumbai), the respective courts held that, that a lump-sum receipt in the form of Alimony will not be taxable in the hands of the recipient. Whereas, monthly alimony payments will be treated as income in the hands of the recipient.

Income from Assets

Any income from the assets gifted prior to divorce could be clubbed with the income of transferring spouse till the marriage exists. After divorce, any subsequent income from these assets would be taxable in the hands of the recipient spouse.

Conclusion:

After the marriage has been legally terminated by the court as it would save the tax for the recipient, the recipient should opt or prefer one-time settlement as it would save tax as compared to the monthly alimony option.