Mutual divorce: How alimony is taxed?

livemint.com:

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.