Me and my spouse are going for a mutual divorce. This might be a one-time full and remaining settlement along with cost of month-to-month upkeep. Will these funds be taxable in her hand? Will I get any profit from the alimony being paid to her?
There are not any clear provisions as regards the taxation of alimony obtained. There are two varieties of alimony: a one-time cost and ii) a recurring cost. The court docket might order cost of 1 or each varieties of alimony whereas passing the divorce decree.
As far as recurring funds of alimony are involved, since no particular exemption is offered in respect of such periodic funds, the identical might get taxed within the fingers of the recipient. However, the one-time alimony could also be obtained as capital receipt and thus might not get taxed in any respect in her fingers. This is absolutely supported by the choice of the Bombay High Court within the case of Princess Maheshwari Devi of Pratapgarh Poona vs CIT 147 ITR 258 the place the court docket has come to the conclusion {that a} one-time cost of alimony is a transaction underneath which the fitting of the spouse to get upkeep from her ex-husband will get partly or absolutely extinguished. The lump sum alimony obtained is to be handled as a capital receipt and therefore, not taxable within the fingers of the spouse. Even if the lump sum shouldn’t be handled as capital receipt, the identical is actually obtained for consideration underneath an settlement to dwell aside.
Since the connection of husband and spouse would not exist, the clubbing provisions in respect of belongings transferred pursuant to the divorce decree won’t be relevant. The court docket had additional determined that the periodical funds as per the divorce decree may be handled as earnings.
Please observe that regardless that the periodic funds made to your spouse could be taxable in her hand, you continue to won’t be able to assert any deduction for funds made underneath the divorce decree.
Balwant Jain is a tax and funding knowledgeable who may be reached at [email protected] and @jainbalwant his X deal with.
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Updated: 07 Sep 2023, 12:39 PM IST
