Is Alimony Taxable in India? Here’s What Husbands and Wife Need to Know

Divorce isn’t just emotionally draining when it comes with a whole bunch of financial changes too. One of the biggest? Alimony. In this article, let's understand the complex tax rules in a simple way.

Understanding Alimony and Its Types

Alimony comes in different flavors, and each has different tax effects.

1. Lump Sum Alimony: A one-time, large payment to settle all future financial obligations.

2. Monthly or Periodic Alimony: Monthly and regular payments are made every month or days for a set period or until a certain condition is met.

3. Child Maintenance: Funds meant exclusively for the upbringing of children. This is separate from alimony.

4. Settlement Alimony (Asset Transfers): Instead of cash, one spouse transfers ownership of assets like property, stocks, or gold to the other.

Let’s look at each of these and understand how they are taxed.

Tax on Lump Sum Alimony

Here’s the good news: lump sum alimony is not taxable in the hands of the recipient. It’s treated as a capital receipt, not income. The reasoning? It compensates for giving up a legal right to future support.

On the other hand, the payer (Mostly the Husband) doesn’t get any tax relief. You can’t claim a deduction for this under Indian tax laws.

In the landmark case of Princess Maheshwari Devi of Pratapgarh v. CIT (1984), the court ruled that lump sum alimony is not income because it compensates the recipient for giving up the right to future maintenance.

Tax on Monthly or Periodic Alimony

Here’s where it flips. If you’re getting monthly alimony, it’s taxable as “Income from Other Sources” under Section 56. That means it goes into your total income and is taxed as per your applicable slab.

For example, in the case X vs. Y (First Appeal No. 141 of 2023), the wife received Rs. 50,000 per month as permanent alimony. This amount was considered taxable income. The court based the alimony amount on the husband’s post-tax income of Rs. 2.31 lakhs per month.

Again, the payer cannot deduct these payments from their taxable income.

Tax on Child Maintenance

Child maintenance payments are meant for the child’s welfare education, healthcare, daily expenses and are not taxable in the hands of the parent receiving them.

In the same X vs. Y case, the wife was awarded Rs. 40,000 per month for their son’s medical and educational needs. This amount was not taxed, as it was for the child’s benefit.

For the payer, no deduction is allowed under the Income Tax Act. Child maintenance is also considered a personal obligation.

Note: Child maintenance is paid to the custodial parent for the child’s upkeep and is not subject to clubbing under Section 64(1A) unless the child earns separate income (e.g., from investments).

Tax on Settlement Alimony (Asset Transfers)

Transfers of assets like property or mutual funds as part of divorce settlements require special attention.

● Before Divorce: Asset transfers between spouses are not taxable, as they are considered gifts from a “relative” under Section 56(2)(x) of the Income Tax Act, 1961. Any income from the asset may be clubbed with the payer’s income under Section 64(1)(iv).

● After Divorce: Once divorced, an ex-spouse is no longer a “relative.” If assets are transferred post-divorce and are worth more than Rs. 50,000, the recipient may face tax under Section 56(2)(x), unless the transfer is part of a court-ordered settlement, which may exempt it.

For example, if a husband transfers a property worth Rs. 1 crore after divorce, and it is not court-directed, the wife may have to pay tax on its value. Income generated from the property (like rent) will also be taxable in her hands after divorce.

Tax from the Husband’s Perspective

For husbands who typically pay alimony:

● Lump sum payments are not deductible.

● Monthly alimony is not deductible.

● Child maintenance is not deductible.

● Income tax continues to apply on full salary, even if a portion is used for alimony payments.

In the Kiran Jyot Maini vs. Anish Pramod Patel (2024) case, the husband paid Rs. 2 crores in a lump sum settlement but received no tax benefit, despite earning Rs. 8 lakhs per month.

Even if alimony is directly paid by the employer from salary, courts have ruled that the entire salary remains taxable in the payer’s hands.

Tax from the Wife’s Perspective

For wives, the taxability depends on the type of payment:

● Lump Sum Alimony – Not taxable (capital receipt).

● Monthly Alimony – Taxable under “Income from Other Sources.”

● Child Maintenance – Not taxable.

● Asset Transfers – Taxable only in specific post-divorce conditions.

● Income from Investments – Fully taxable (e.g., interest, rent).

For example, if a wife receives Rs. 2 crores in a lump sum and invests it in fixed deposits earning 6 percent annually, the Rs. 12 lakhs interest will be taxable as income.

How Courts Consider Tax While Calculating Alimony

In Rajnesh v. Neha (Supreme Court, 2020), the court has laid down detailed guidelines for calculating maintenance, including:

● Financial capacity of both parties

● Needs of children

● Living standards

● Sacrifices made during marriage

● Post-tax income of the husband

In recent cases, courts have increasingly used post-tax income to set alimony amounts, indirectly acknowledging the tax burden on the husband and tax liability of the wife.