I’m divorced and have to pay ₹90,000 alimony to my ex-wife. Can I claim tax exemption on the alimony? Can I claim a tax exemption on this alimony? Does it matter if I pay it monthly or annually? If we agree on a one-time settlement, would that be tax-exempt, even if the amount is much higher?
– Name withheld on request
Alimony payments, whether made monthly, annually, or as a one-time lump sum, are considered a personal obligation and are not tax-deductible for the payer. In fact, the Bombay High Court has held that even if the alimony is paid by the husband’s employer out of his salary to his former wife, the entire amount of salary earned will be taxed in the hands of the husband, and the amount paid directly by the employer to the former wife will not be deductible from such salary income for computing the tax payable.
However, if alimony is paid in the form of a capital asset transfer instead of money, it won’t be subject to capital gains tax for the payer, nor will any income generated by the asset be clubbed with the payer’s taxable income.
Alimony received on a monthly basis is taxable in the hands of the recipient. On the other hand, lump-sum alimony received is considered as a capital receipt and therefore, not taxable in the hands of the recipient. Similarly, if one receives capital asset under the terms of a divorce settlement, one may be able to take a view that such receipt is a capital receipt and is not taxable.
Mahesh Nayak, chartered accountant, CNK & Associates.
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