Money and Marriage: How is Your Alimony Amount Taxed After You Get it After Divorce Settlement?

What is Alimony?

Alimony or spousal support or maintenance is a monetary sum paid by the husband to his ex-wife after a divorce or separation. This is governed by the regulations of the Hindu Marriage Act of 1955. The alimony payment can be made one-time, in lumpsum, or periodically, i.e., at regular intervals, as agreed upon at the time of the divorce.

While alimony offers crucial financial support, it can attract taxes. It is important for women to understand the tax implications of receiving alimony in India.

The Income Tax Act does not specify the provisions for the taxation of alimony. However, taxation depends on various case laws. For example, capital receipts are considered non-taxable, and revenue receipts are considered taxable.

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What are the Types of Alimony?

Depending on various factors like properties owned, sources of income earned, period of marriage, age, social status, and lifestyle, Alimony can be divided into the following types -

Separation Alimony

It is the support amount given at the time of separation when the divorce has not happened. If one partner is not self-sufficient, the court may order to pay a separation alimony. In case the couple reconciles, the alimony payments stop, and if the couple gets divorced, the separation alimony changes into divorce alimony.

Permanent Alimony

Permanent alimony payments go on indefinitely. Such alimony is paid in cases where the spouse, prior to marriage, never worked or has no employment history or skills whatsoever and was a homemaker after marriage. It is also paid in cases where the spouse cannot become self-sufficient due to some disability or permanent incapacity. These payments continue till the spouse gets remarried, dies, or settles with another individual.

Rehabilitative Alimony

Rehabilitative alimony has no specific time when it comes to an end and depends on the situation of the individual. It is paid when the spouse is not self-sufficient or when he/she finds a means to take care of themselves and their children. The scenarios might include the payment of such alimony till the time the children are able to go to school.

Reimbursement Alimony

Reimbursement alimony means repayment. It is paid in case one spouse has spent money to put the other spouse through school/college or an employment program that led to an increase in his earnings.

Lump Sum Alimony

This is a type of alimony that is paid one time in a single payment. There are no recurring payments in this case.

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Methods for Payment of Alimony

Alimony Through Cash

• Lumpsum Alimony
  Any one-time lump sum amount received as alimony is treated as capital receipt and is not subject to tax.
• Periodic Alimony (Recurring Payments)
  When the alimony is paid in regular monthly payments, it is considered as a revenue receipt and therefore, is added to the total income and subject to tax at the applicable slab rates in the hands of the recipient as “Income from other sources”.

Alimony through Assets

• Assets Transferred Before Divorce
  If the spouse pays the alimony in the form of assets and the assets are transferred before the divorce, then it might be considered as a gift from a relative (spouse) and thus be exempt from tax under section 56(2) of the Income Tax Act.
• Assets Transferred After Divorce
  Once the divorce takes place, and the assets are transferred after the divorce in the form of alimony, it cannot be considered a gift from a relative and hence is subject to tax in the hands of the recipient. However, if such a transfer is the result of a court order or a formal agreement for alimony, it is not considered a gift, and section 56(2) is not applicable.

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