Mutual divorce: How alimony is taxed? | Mint
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Business News/ Money / Q&a/  Mutual divorce: How alimony is taxed?
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Mutual divorce: How alimony is taxed?

Taxability of alimony payments in divorce: Recurring payments may be taxed, while one-time payments may not be taxed

Even though the periodic payments made to your wife would be taxable in her hand, you still will not be able to claim any deduction for payments made under the divorce decree. (Mint)Premium
Even though the periodic payments made to your wife would be taxable in her hand, you still will not be able to claim any deduction for payments made under the divorce decree. (Mint)

Me and my wife are going for a mutual divorce. This will be a one-time full and final settlement in addition to payment of monthly maintenance. Will these payments be taxable in her hand? Will I get any benefit from the alimony being paid to her?

There are no clear provisions as regards the taxation of alimony received. There are two types of alimony: a one-time payment and ii) a recurring payment. The court may order payment of one or both types of alimony while passing the divorce decree.

As far as recurring payments of alimony are concerned, since no specific exemption is provided in respect of such periodic payments, the same may get taxed in the hands of the recipient. However, the one-time alimony may be received as capital receipt and thus may not get taxed at all in her hands. This is fully supported by the decision of the Bombay High Court in the case of Princess Maheshwari Devi of Pratapgarh Poona vs CIT 147 ITR 258 where the court has come to the conclusion that a one-time payment of alimony is a transaction under which the right of the wife to get maintenance from her ex-husband gets partly or fully extinguished. The lump sum alimony received is to be treated as a capital receipt and hence, not taxable in the hands of the wife. Even if the lump sum is not treated as capital receipt, the same is certainly received for consideration under an agreement to live apart.

Since the relationship of husband and wife would no longer exist, the clubbing provisions in respect of assets transferred pursuant to the divorce decree will not be applicable. The court had further decided that the periodical payments as per the divorce decree can be treated as income.

Please note that even though the periodic payments made to your wife would be taxable in her hand, you still will not be able to claim any deduction for payments made under the divorce decree.

Balwant Jain is a tax and investment expert who can be reached at jainbalwant@gmail.com and @jainbalwant his X handle.

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Published: 07 Sep 2023, 12:39 PM IST
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