How is alimony taxed in India? | Tax rules on alimony

Income Tax Income from Other Sources
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I got separated from my spouse last month and I am supposed to receive alimony payment. Do I need to report this as income in my ITR? Is it tax-free? I’ve heard different things and now I am a bit confused. Can anyone clarify tax rules on alimony?

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Hey @Pearl ,

There’s no specific provision under the Income Tax Act that directly addresses the taxability of alimony. But we can understand its taxability based on the frequency of the transaction and also by considering different case laws.

It can either be received as a one time settlement or on regular intervals like monthly maintenance.

Let’s understand the taxability of different kinds of settlements one by one:

  1. One-time lump sum settlement:

    If you receive alimony as a one-time payment under a divorce or settlement agreement, it’s generally considered a capital receipt and is not taxable. You can report this amount under the schedule “Exempt Income” in your Income Tax Return (ITR).

  2. Recurring payments (e.g. monthly maintenance, etc.)

    If you’re receiving alimony in the form of regular payments—say monthly, then these amounts are treated as taxable income. You’ll need to report it under the head “Income from Other Sources”, and it will be taxed as per your applicable slab rate.

  3. Transfer of assets (e.g., property or investments)

    If property or other assets are transferred to you as part of the settlement, there’s no tax at the time of transfer. You can declare the value under “Exempt Income” in your ITR.

    However, if you sell the asset later, you’ll be liable to pay capital gains tax, where the holding period and cost of acquisition are calculated from the date and cost when the previous owner had acquired the asset.

If you have any further questions on alimony taxation, you can post them below!

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Thanks @Sakshi_Jain I have one more question.

Additionally, a portion of the settlement amount will be allocated to my daughter, which we intend to invest in a fixed deposit in her name. I’ve come across the provisions regarding the clubbing of a minor child’s income. In this context, would the interest income from the fixed deposit be included in her father’s income, given that he is the parent with the higher income?

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So, the usual provisions of clubbing of income is to add the minor child’s income to the parent’s income who earns more. But after separation, minor child’s income will be clubbed with the income of the parent who has the custody of the child.

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Property received as gift via settlement Deed from Husband and son before 4years.If wife gives property for rent whether it will be taxed in hand of wife or in hand of husband

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If the property has been received as gift from husband, the taxability of rental income follows the clubbing provisions u/s 64 i.e, it will be taxed in the hands of Husband

But If the Property was transferred to the wife as part of settlement deed during or after a divorce the clubbing provisions typically does not apply & the rental income will be taxable solely in the hands of the wife as she is the legal owner.

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This brings us to an interesting topic of divorce settlement taxability. I understand that if a monthly maintenance is received then it is taxable in the hands of recepient. But if one time settlement is received then it is not taxable. Your comments pls. Thanks

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You’re absolutely correct! In India, the tax treatment for alimony or maintenance payments in divorce settlements varies based on the nature of the payment.

  1. Monthly Maintenance Payments: Regular, periodic maintenance payments received post-divorce are generally considered taxable in the hands of the recipient under “Income from Other Sources” in the Income Tax Act. The recipient must include this income in their total taxable income and pay tax accordingly.

  2. One-Time Lump Sum Settlement: A one-time, lump-sum payment received as part of the divorce settlement is generally considered a capital receipt. Since it’s not a recurring income and is viewed as a non-taxable transfer of assets or settlement of rights, it’s typically not subject to tax. However, if this payment is made in installments, there could be some grey area, but as long as it’s structured as a capital settlement and not regular income, it should remain non-taxable.

It’s also worth noting that these interpretations are based on existing judicial precedents and the specifics of each case, as well as the settlement agreement. If structured properly, a one-time settlement can indeed be received without tax implications, while regular maintenance payments are considered income.

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