Is Alimony In India Taxable?

The world we live in is constantly changing; with each passing day, advancements are being made in fields of business, technology, research, among other things. However, the one thing we’ve often wrestled with is breaking free of the shackles of society. In a country where marriage is held sacred, the word “divorce” is just something that is unthinkable of, for the most part. One of the significant reasons for the low divorce rates in India (13 in every 1000) is because of the associated stigma that comes along with it. It may be interesting to note that as per a BBC report of 2016, the number of individuals who got separated is almost thrice the number of people divorced.

Nevertheless, in recent years, with the advent of women getting access to better education, awareness regarding fundamental rights, and the fact they have turned independent in a financial, mental and physical sense as well, they are able to assume control of their lives in a better manner. More and more women are able to stand up for themselves and even go to the lengths of getting a divorce when they are being ill-treated or if they are not happy with the marriage. Post-divorce, the woman may also be legally entitled to receive spousal support/maintenance payments, generally known as “Alimony”.

1. Alimony

When a divorce or separation happens, the court may direct the spouse to pay the other in the form of spousal payments, also known as alimony which is governed by the provisions which are listed under the Hindu Marriage Act, 1955. These alimony payments are to be made based on the directive of the court or by a mutual agreement entered into between both the parties. In most cases, what happens is that one spouse may have given up a promising career so that the family could be supported. That, ideally, is one of the reasons for the payment of alimony.

2. Types of Alimony

While deciding the type of alimony, the court takes into account various parameters such as:-

– Properties and other assets owned by the husband and wife
– Sources of income earned by the husband and the wife
– The period of the marriage
– Age, health, social status, and the lifestyle of both the husband and the wife
– Any dependents, in the case of both parties
– Other liabilities
– Expenses involved in the children’s education and upbringing

Taking into consideration all these factors as well as the facts and circumstances of the case, the amount of alimony is decided and awarded by the court.

1. Separation Alimony:
   
   In this case, the divorce has not taken place. This is a case of pure separation only. During this separation, if one partner is incapable of self-sufficiency, separation alimony may be ordered to be paid by a court of law. In any case where the couple reconciles, then the alimony payments cease. However, going the other way, if the separation then further leads to a divorce, then the type of alimony will be changed to something other than separation alimony.
2. Permanent Alimony:
   
   As the name itself suggests, permanent alimony payments go on indefinitely. The reasons for this type of alimony being awarded are:-
   
   – Where the recipient, prior to the marriage, had no employment history or skills whatsoever, and post-marriage, has never worked but has undertaken the role of a home-maker.
   – The inability to become self-sufficient, generally due to reason of some level of disability or permanent incapacity.
   
   These payments continue indefinitely, unless, of course, the spouse gets remarried or dies or settles with another individual.
3. Rehabilitative Alimony:
   
   Rehabilitative alimony has no specific time where it comes to an end; it generally depends on a given individual situation. It may be awarded where the spouse is not self-sufficient or where he/she finds a means to take care of themselves and their children. A typical scenario could be the payment of alimony to the spouse until the children are able to go to school. Rehabilitative alimony is normally reviewed at various intervals to check what the progress/most recent development is. The changes are made in accordance with the review of the situation.
4. Reimbursement Alimony:
   
   Reimbursement generally means repayment, exactly what this kind of alimony intends to do. Where one party has spent money to put the other spouse through college/school/an employment program resulting in the spouse’s earnings increasing, the court may award reimbursement alimony to be paid to the extent of half the amount spent or even the full amount, as the case may be.
5. Lump Sum Alimony:
   
   This is a one-time payment of alimony. There is no question of recurring payments in this case. The entire amount of alimony is paid in one shot itself in lieu of property or any other assets accumulated by the couple.

3. Taxability of Alimony

There is no specific provision of the Income Tax Act, 1961, that governs the taxability of alimony. The taxability of alimony all boils down to how the payment is made. Past judgments in various scenarios have also helped us gain a better understanding of the same.

– In case of a lump sum payment of alimony:
Here, the alimony is treated as a capital receipt, and therefore, the provisions of the Income Tax Act, 1961 do not apply. Hence it is not treated as income and is not taxable.

– In case of recurring payments of alimony:
Alimony, in this case, is considered as a revenue receipt. Therefore, it is treated as income that is taxable in the hands of the recipient.

Nevertheless, it needs to be noted that the person who makes the payment of alimony may not claim any sort of deduction against the same.

4. Alimony Paid Through Asset Other Than Cash

Any asset that is transferred without any consideration prior to the divorce will be exempted from tax in the hands of the recipient. The reasoning behind this is that the asset so transferred will be treated as a gift received from relatives and thereby exempt as per the provisions of Section 56 (ii) of the Income Tax Act, 1961. However, post-divorce, the “relative” aspect of the transaction ceases to exist, and therefore, such transfer is referred to as taxable in the hands of the recipient.

Further, as long as the marriage exists, any income earned from the asset transferred will be clubbed along with the income of the spouse who transferred the asset. The recipient will not have any tax implications in this case. However, once the divorce has taken place and the marriage ceases to exist, the subsequent income earned on that asset will be taxable in the hands of the recipient spouse only.

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