Is Alimony in India Taxable?

Last Updated at: May 20, 2020
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Is Alimony in India Taxable

Breaking or dissolving a marriage is a painful yet liberating experience. While the institution of marriage is held sacred in India, more and more people are making terms of walking away from unhappy marriages. While women were held back in the past due to societal norms and stigma, those shackles are being broken. The best way to have a smooth and hassle-free divorce is to know everything about the process before-hand. Most divorce laws in India, allow the spouses to agree on and pay each other alimony. However, is the alimony you receive from your spouse taxable in India? Here’s a look at everything you need to know regarding the payment of alimony in India.

  1. What is Alimony?

  2. What are the different types of Alimony?

  3. Mutual Divorce Alimony Taxation

  4. Transfer of Assets

  5. What happens to Wealth Tax?

What is Alimony?

The money paid by one spouse to the other as a form of maintenance, after the dissolution of marriage is termed alimony. Since various religious communities are living together in India, each has its own set of rules related to divorce and alimony. Maintenance payment can be as a one-time payment, or sometimes as a periodic receipt every month. In India, alimony is not as a type of income as per the Income Tax Act, 1961. In most cases, this amount is given by the earning spouse to the non-earning spouse as a form of maintenance fee. Alimony is payable only when the couple is legally divorced.

What are the different types of Alimony?

Alimony can be on either as a one-time settlement or as a periodical payment. When paid in one go, it considers a capital receipt, whereas monthly payments come under the bracket of a revenue receipt. 

Get legal advice 

To arrive at the alimony amount, the court considers several factors, such as age, financial dependence, qualifications, and family background of the spouses. Marriages which have lasted over 10 years, usually witness the grant of lifelong alimony. Also, young spouses get less maintenance, as they have time to pursue a job and achieve financial independence. The economic disparity between the couple is also an essential factor, with the higher-earning spouse having to pay the alimony. In case, one spouse suffers from poor health, the other will have to pay higher maintenance, to provide for their medication and healthcare. 

Mutual Divorce Alimony Taxation

In India, capital receipts are not taxable, whereas revenue receipts are. A judgment by the Mumbai High Court stated that monthly alimony since it is a regular and periodic return can be considered to be a taxable income. However, this judgment means for only cash payments as a form of alimony and is not considering transfer assets. Alimony is not taxable if it is paying as a lump-sum amount in the form of cash. However, if it is paying every month, it becomes a revenue, which is taxable. Additionally, the spouse who provides the amount as alimony cannot claim any tax deduction for this amount, either. In case your spouse only pays certain expenses, such as child support or EMI, rather than a monthly payment, then it is not taxable.

Transfer of Assets

As per Section 56(2) of the Income Tax Act, assets transfer to a spouse when the marriage exists is tax-free for the recipient. However, assets transferred after divorce, to a spouse without consideration, will have tax implications for the recipient. Also, for immovable assets such as jewelry and securities, if they are worth over Rs 50,000, the entire value is taxable. If the assets have some consideration lesser than the fair amount exceeding Rs 50,000, then the difference is taxable. If the stamp duty of an immovable property, which transfers exceeds Rs 50,000, the entire value is taxable for the spouse who receives the asset.

Also, income that generates from the transfer of the assets will add to the income of the transferring spouse until the marriage lasts. Once the completion of the divorce, any subsequent income is taxable for the recipient spouse. While there is no specific rule concerning the tax implications of assets that have been sold, there are some general rules. Any asset, when sold, is liable to levy capital gains tax. If assets that receive without consideration before the divorce, are selling, then the process is different. The gain and subsequent taxation depend on how long the spouse held on to the asset. In such cases, the cost of acquisition is the cost at which the older owner bought the asset.

What happens to Wealth Tax?

Marriage and the subsequent divorce has an impact on the calculation and payment of wealth tax. When a marriage exists, several provisions, such as income, will club together under the wealth tax. Any asset which has been transferred, without consideration, belongs to the transferor spouse when the marriage is legal. However, after the dissolution of marriage, these assets become a part of the net wealth of the recipient.

 

 

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Is Alimony in India Taxable?

166

Breaking or dissolving a marriage is a painful yet liberating experience. While the institution of marriage is held sacred in India, more and more people are making terms of walking away from unhappy marriages. While women were held back in the past due to societal norms and stigma, those shackles are being broken. The best way to have a smooth and hassle-free divorce is to know everything about the process before-hand. Most divorce laws in India, allow the spouses to agree on and pay each other alimony. However, is the alimony you receive from your spouse taxable in India? Here’s a look at everything you need to know regarding the payment of alimony in India.

  1. What is Alimony?

  2. What are the different types of Alimony?

  3. Mutual Divorce Alimony Taxation

  4. Transfer of Assets

  5. What happens to Wealth Tax?

What is Alimony?

The money paid by one spouse to the other as a form of maintenance, after the dissolution of marriage is termed alimony. Since various religious communities are living together in India, each has its own set of rules related to divorce and alimony. Maintenance payment can be as a one-time payment, or sometimes as a periodic receipt every month. In India, alimony is not as a type of income as per the Income Tax Act, 1961. In most cases, this amount is given by the earning spouse to the non-earning spouse as a form of maintenance fee. Alimony is payable only when the couple is legally divorced.

What are the different types of Alimony?

Alimony can be on either as a one-time settlement or as a periodical payment. When paid in one go, it considers a capital receipt, whereas monthly payments come under the bracket of a revenue receipt. 

Get legal advice 

To arrive at the alimony amount, the court considers several factors, such as age, financial dependence, qualifications, and family background of the spouses. Marriages which have lasted over 10 years, usually witness the grant of lifelong alimony. Also, young spouses get less maintenance, as they have time to pursue a job and achieve financial independence. The economic disparity between the couple is also an essential factor, with the higher-earning spouse having to pay the alimony. In case, one spouse suffers from poor health, the other will have to pay higher maintenance, to provide for their medication and healthcare. 

Mutual Divorce Alimony Taxation

In India, capital receipts are not taxable, whereas revenue receipts are. A judgment by the Mumbai High Court stated that monthly alimony since it is a regular and periodic return can be considered to be a taxable income. However, this judgment means for only cash payments as a form of alimony and is not considering transfer assets. Alimony is not taxable if it is paying as a lump-sum amount in the form of cash. However, if it is paying every month, it becomes a revenue, which is taxable. Additionally, the spouse who provides the amount as alimony cannot claim any tax deduction for this amount, either. In case your spouse only pays certain expenses, such as child support or EMI, rather than a monthly payment, then it is not taxable.

Transfer of Assets

As per Section 56(2) of the Income Tax Act, assets transfer to a spouse when the marriage exists is tax-free for the recipient. However, assets transferred after divorce, to a spouse without consideration, will have tax implications for the recipient. Also, for immovable assets such as jewelry and securities, if they are worth over Rs 50,000, the entire value is taxable. If the assets have some consideration lesser than the fair amount exceeding Rs 50,000, then the difference is taxable. If the stamp duty of an immovable property, which transfers exceeds Rs 50,000, the entire value is taxable for the spouse who receives the asset.

Also, income that generates from the transfer of the assets will add to the income of the transferring spouse until the marriage lasts. Once the completion of the divorce, any subsequent income is taxable for the recipient spouse. While there is no specific rule concerning the tax implications of assets that have been sold, there are some general rules. Any asset, when sold, is liable to levy capital gains tax. If assets that receive without consideration before the divorce, are selling, then the process is different. The gain and subsequent taxation depend on how long the spouse held on to the asset. In such cases, the cost of acquisition is the cost at which the older owner bought the asset.

What happens to Wealth Tax?

Marriage and the subsequent divorce has an impact on the calculation and payment of wealth tax. When a marriage exists, several provisions, such as income, will club together under the wealth tax. Any asset which has been transferred, without consideration, belongs to the transferor spouse when the marriage is legal. However, after the dissolution of marriage, these assets become a part of the net wealth of the recipient.

 

 

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