What is Alimony?
When one partner gives money to another spouse, this is called alimony. This type of payment is also known as maintenance or spousal support.
Taxation
Lump Sum Alimony
Not taxable
Treated as a capital receipt
Periodic/Recurring Alimony
Taxable as income from other sources
Recipient must report it in their tax return and pay taxes at applicable slab rates
Asset Transfer Considerations
Assets transferred during marriage: Tax-free as it is a gift from relatives under the Income Tax Act, Section 56(2)(x).
Assets transferred after divorce: Once the divorce is finalized, the relationship between spouses ceases to exist. Transfers made post-divorce may not qualify as gifts and could be subject to taxation in the hands of the recipient.
Important Notes
There are no specific provisions in the Income Tax Act 1961 that directly address alimony taxation. The taxation depends on the characterization of the payment and the nature of the asset.
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