Alimony To Wife: Is It Taxable or Non Taxable?

As many of you are aware, the recent news surrounding Atul Subash’s suicide case has raised significant concerns. Allegations of harassment, an unfounded dowry case, and continuous financial demands from his wife, parents, and other relatives have surfaced. We must seriously consider such cases and the underlying issues they represent.

Alimony, also referred to as spousal support or maintenance, is a financial arrangement between divorcing or separated spouses. It entails one spouse paying a specified sum of money to the other to help sustain their standard of living.

The purpose of alimony is to provide financial support to a spouse who may be at an economic disadvantage after a divorce, particularly if they have sacrificed career opportunities to raise children or have a lower earning potential.

In recent years, with improved access to education and a growing awareness of fundamental rights, women have become more independent—financially, mentally, and physically. This shift allows them to take greater control of their lives. More women are standing up for themselves and, when faced with mistreatment or unhappiness in their marriages, are increasingly willing to seek divorce.

Types of alimony

Various types of alimony are decided and awarded by the court or jurisdiction, which are as follows:

Temporary Alimony

This alimony provides financial support during the divorce process and is paid only until the divorce is finalized.

Permanent Alimony

This alimony provides long-term financial support for a spouse who is unable to achieve self-sufficiency due to various circumstances. It is typically paid indefinitely or under specific conditions.

Rehabilitative Alimony

This alimony aims to help the spouse achieve financial independence through education, training, or employment. It is intended as short-term support until these goals are reached.

When discussing the taxability of alimony in India, it depends on how the wife receives it. There is no specific provision in the Income Tax Act of 1961 that addresses the taxability of alimony. The taxability of alimony depends largely on how the payments are made. Here’s how it is treated under Indian tax laws:

Lumpsum alimony

This is non-taxable, it is considered as capital receipt and the provisions of the Income Tax Act do not apply as it is not considered as income.

Periodic alimony

This is taxable under the Income Tax Act as it is considered as income. This will be treated as “Income under other sources” in the hands of the spouse who receives it.

Taxability of Alimony Paid Through Assets in India

Alimony can be paid in forms other than cash, such as “in-kind alimony” or “property transferred as alimony.” When alimony is paid through assets instead of cash, the treatment and implications vary based on the jurisdiction.

Transfer of House/Property

• At the time of transfer: Not taxable for the wife as it is a capital receipt.

• On future sale: The wife pays capital gains tax based on the indexed cost of acquisition from the husband’s original purchase date.

Transfer of Movable Assets

• At the time of transfer: Non-taxable for the wife.

• On sale: Taxable as capital gains in the wife’s hands.

1. Jewellery: Taxable as long-term or short-term capital gains depending on the holding period.
2. Shares: Taxable with indexation benefits if held for the required period.

Pension or Provident Fund Transfers

• Typically non-taxable as long as they comply with family law or court orders.

• Subsequent withdrawals by the wife from such funds are taxable according to income tax rules.

Although alimony is paid through assets, it is typically not taxable for the wife at the time of transfer. However, any income generated after the transfer will be taxable to the wife under the head “Income from other sources” (e.g., rental income, dividends, or interest). For a husband, transferring assets as alimony does not incur an immediate tax liability or allow for a tax deduction.

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