When marriage is held sacred, the word "divorce" is unthinkable most of the time. India's low divorce rate (13 in every 1000) is largely due to the stigma that surrounds it. According to a BBC report from 2016, the number of people who got separated is almost three times that of people who got divorced.
Introduction
Breaking up 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 most effective way to have a smooth and hassle-free divorce is to know everything about the process beforehand. Most divorce laws in India allow 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.
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 live together in India, each has its own set of rules related to divorce and alimony.
The maintenance payment can be a one-time payment or a monthly receipt. In India, alimony is not 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 provided either as a one-time settlement or as a periodic payment. When paid in one go, it is considered a capital receipt, whereas monthly payments come under the bracket of a revenue receipt.
To arrive at the alimony amount, the court considers several factors, such as age, financial dependence, qualifications, and family background of the spouses. Marriages that last over 10 years usually result in 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 alimony.e, if 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 taxed, 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 taxable income.
This judgment, however, only considers cash payments as alimony and does not include transfers of assets. Alimony in India is not taxed if it is paid as a lump-sum amount in the form of cash. However, if it is received every month, it becomes taxable income. Furthermore, the spouse who provides the amount as alimony cannot claim any tax deduction for this amount, either. If your spouse only pays certain expenses, like child support or EMI, instead of a monthly payment, then it is not taxable.
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Transfer of Assets
As per Section 56(2) of the Income Tax Act, assets given 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 ₹ 50,000, the entire value is taxable. If some consideration is less than the fair amount exceeding 50,000, then the difference is taxable.e. If the stamp duty of an immovable property that transfers exceeds ₹ 50,000, the entire value is taxable for the spouse who receives the asset.
In addition, income generated from the transfer of assets will be added to the income of the transferring spouse for as long as the marriage lasts.
Once the divorce is finalized, 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 for capital gains tax. It is a different process if assets are transferred without consideration before the divorce. 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 the Wealth Tax?
Marriage and the subsequent divorce have an impact on the calculation and payment of wealth tax. When a marriage exists, several provisions, such as income, will fall under wealth tax. Any asset that has been transferred, without consideration, belongs to the transferor spouse when the marriage is legal. However, after the dissolution of marriage, these assets will become part of the net wealth of the recipient.
Conclusion
It is advisable to consult a legal professional after gathering all the facts and documents needed to build a case. Want to know more or need any help? Contact our team or leave your queries in the comment section below.
Read More:-
- Alimony Legal Issues And Solutions
- Divorce: The Ultimate Guide to Alimony
- What are the Alimony Laws in India?
