Divorce or separation often brings emotional and financial turbulence. In many cases, the spouse—most commonly the wife—receives alimony or maintenance as part of the settlement.
But when this financial support is received, an important question arises: Does alimony amount to taxable income under Indian tax law?
The short answer — it depends on how it’s paid.
Let’s unpack this with the help of legal provisions, judicial rulings, and practical implications.
Understanding Alimony and Its Forms
In India, alimony or maintenance is a financial arrangement granted by one spouse to the other after or during divorce proceedings. It can be either:
- Lump-sum Alimony (Permanent Alimony):
A one-time payment made as part of full and final settlement of all claims and rights arising out of marriage. - Periodic or Monthly Alimony (Recurring Maintenance):
Regular payments made to help the dependent spouse meet living expenses after separation.
While both serve the same purpose, their tax implications differ sharply.
How the Income Tax Act Views Alimony
Interestingly, the Income Tax Act, 1961 doesn’t have a specific section dealing with alimony. So, taxability is determined based on the general definition of income under Section 2(24) and Section 56(1) (Income from Other Sources).
The guiding principle is: is the receipt capital or revenue in nature?
1. Lump-Sum Alimony – Generally Not Taxable
When alimony is received as a one-time settlement, courts have recognized it as a capital receipt, not arising from employment, business, or recurring source.
Hence, such payments are not taxable in the recipient’s hands.
Key Judicial References:
- Princess Maheshwari Devi of Pratapgarh v. CIT (1984) 147 ITR 258 (Rajasthan HC)
The court held that a lump-sum amount received by a divorced wife is a capital receipt and not taxable. - CIT v. Shaw Wallace & Co. Ltd. (1932) 2 Comp Cas 276 (PC)
The Privy Council clarified that income generally represents a periodical monetary return from a definite source. A one-time compensatory receipt does not qualify as income.
In essence:
If a wife receives alimony as a one-time settlement under a decree or mutual agreement, it is tax-free.
2. Periodic or Monthly Alimony – Taxable as Income
Regular or monthly maintenance is considered a recurring benefit meant to replace income lost due to marital separation.
Therefore, courts treat it as a revenue receipt, taxable as “Income from Other Sources” under Section 56(1).
Relevant Rulings:
- CIT v. Dr. R. Vasudevan (Madras High Court, 2013)
The court held that monthly alimony is a recurring receipt and taxable in the hands of the recipient. - CIT v. Alka V. Bhatia (2001) 247 ITR 159 (Bombay HC)
Periodic payments received by a divorced wife were treated as taxable income.
So, while lump-sum alimony is tax-free, monthly alimony is taxable like any other recurring income.
Tax Implications for the Payer (Husband or Wife)
On the payer’s side, alimony payments are not eligible for deduction.
Neither Section 37 nor Section 57 of the Income Tax Act provides any relief for such outgoings, since they are considered personal expenses, not incurred for earning income.
However, where assets like property or investments are transferred to settle alimony, capital gains tax may apply on the transfer, depending on the cost and holding period of the asset.
Different Legal Scenarios and Their Impact
- Under Section 125 of the CrPC – Maintenance awarded by the court for sustenance is not considered profit-oriented, but regular receipts remain taxable.
- Under the Hindu Marriage Act, 1955 – Permanent alimony under Section 25 is often treated as capital receipt if received in lump sum.
- Under the Protection of Women from Domestic Violence Act, 2005 – Compensation for injury or distress may qualify as capital receipt depending on context.
Thus, the nature and intent of payment matter more than the law under which it is granted.
Alimony Received from an NRI Spouse
If the husband is a non-resident and transfers alimony to a resident wife in India, the taxability depends on the residential status of the recipient under Section 6:
- If the wife is Resident and Ordinarily Resident (ROR), the amount is taxable in India (if periodic).
- If the wife is Non-Resident (NR) or Resident but Not Ordinarily Resident (RNOR), only income accruing or received in India is taxable.
In case of lump-sum alimony received abroad, it generally remains non-taxable, being a capital receipt.
TDS and Compliance Questions
- No TDS is required on lump-sum alimony, since it’s not income.
- For periodic payments from an Indian resident, there’s no explicit TDS provision, though the income must be reported by the recipient.
- For payments by NRIs, Section 195 may trigger TDS obligations if the amount qualifies as income taxable in India.
Recent Judicial Observations
- ACIT v. Meenakshi Khanna (ITAT Delhi, 2012) – Regular monthly maintenance held taxable under “other sources”.
- CIT v. Smt. Shanti Meattle (1983) 139 ITR 168 (Allahabad HC) – Lump-sum settlement held non-taxable.
- Kusum Sharma v. Mahinder Kumar Sharma (Delhi HC, 2015) – Maintenance is meant for survival and dignity, not enrichment or profit.
These judgments highlight that the purpose and periodicity of payment decide its taxability.
Practical Tips and Tax Planning Insights
- Prefer one-time settlements to avoid recurring tax obligations.
- Mention explicitly in the divorce decree that the amount is in full and final settlement.
- If monthly alimony is received, declare it under Income from Other Sources in ITR to maintain compliance.
- Consider the impact of inflation and tax bracket when negotiating maintenance terms.
- Where large lump-sum amounts are received, plan investment strategy carefully to manage future tax on interest income.
Comparative Snapshot
| Type of Alimony | Nature | Taxability | Key Case Reference |
|---|---|---|---|
| Lump-sum (one-time) | Capital Receipt | Not Taxable | Princess Maheshwari Devi of Pratapgarh (1984) |
| Periodic/Monthly | Revenue Receipt | Taxable under “Income from Other Sources” | CIT v. Dr. R. Vasudevan (2013) |
| Paid by Husband | Personal Expense | Not Deductible | No specific provision |
Key Takeaways
- Lump-sum = Capital Receipt (Non-taxable)
- Monthly = Revenue Receipt (Taxable)
- Husband cannot claim deduction
- Recipient should declare periodic payments in ITR
- Nature of payment and intent are decisive factors
FAQs
1. Is alimony always taxable in India?
No. Only recurring or periodic alimony is taxable. Lump-sum settlements are capital receipts and not taxable.
2. How should monthly alimony be reported in ITR?
Under the head Income from Other Sources.
3. Can TDS be deducted on alimony payments?
Not for lump-sum payments. For payments from NRIs, TDS under Section 195 may apply in some cases.
4. Can the payer claim deduction for alimony paid?
No, it’s a personal expense, not deductible under any provision of the Act.
5. What happens if the wife invests alimony money?
The principal amount is tax-free (if lump-sum), but any interest, dividend, or capital gain earned on it becomes taxable.
Conclusion
Taxability of alimony depends not on who pays or receives it, but on how it’s structured.
A single, full and final payment is tax-free, but monthly maintenance counts as income.
Clear documentation and professional advice during divorce proceedings can save both parties from future disputes and unwanted tax burdens.
Disclaimer
The contents above represent the author’s personal understanding of the law as on date. Though due care has been taken, errors or omissions may occur. This article is for information only and should not be treated as legal or tax advice. Readers should consult their own Chartered Accountant for specific guidance. Neither the author nor the firm accepts responsibility for any action taken based on this information