Alimony and Income Tax: Is ex-wife liable to pay income tax on settlement amount received from husband in a divorce case?

economictimes.indiatimes.com:

divorce while it may also continue after divorce. Sometimes alimony is not pure financial support, rather it can be distribution of family assets also.

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Each alimony case is distinct and personal to the case at hand. Regardless of this fact, alimony is a financial transaction and like all financial transactions are required to stand the scrutiny of income tax liability. So, do the beneficiaries receiving alimony need to pay income tax on it? The answer to this is tricky.

Since the Income Tax Act is silent on the aspect of taxation of alimony, experts say we need to rely on judgements and precedents set by the ITAT, High Court and Supreme Court.

How is alimony taxable?

We have asked various experts about situations of alimony payment involving various scenarios. Here’s what they said:

Situation 1: Alimony received as one-time payment

Kunal Savani, Partner, Cyril Amarchand Mangaldas says, “The Income Tax Act, 1961 does not include specific provisions on alimony, so it is necessary to look at judicial precedents for guidance. For example, the relinquishment of conjugal rights by the wife in exchange for alimony is not considered a gift made for inadequate consideration. As a result, a one-time lump sum alimony payment is classified as a capital receipt and is exempt from taxation. This tax treatment can be