A lump sum alimony paid as a one-time settlement under mutual consent or court decree is treated as a capital receipt and is not taxable.
Indian cricketer Yuzvendra Chahal and his estranged wife Dhanashree Verma recently got divorced after a family court in Bandra approved it by mutual consent. As per the terms of the divorce, Chahal will pay Verma alimony of Rs 4.75 crore in two instalments.
What Is Alimony?
Alimony, also referred to as maintenance or spousal support, is a court-ordered financial assistance one spouse provides to the other during or after divorce or separation.
Is Alimony Tax-Deductible?
In India, the taxability of alimony hinges on its mode of payment.
According to Sonam Chandwani, Managing Partner of KS Legal & Associates, a lump-sum alimony paid as a one-time settlement under mutual consent or court decree is treated as a capital receipt and is not taxable in the hands of the recipient, nor is it deductible for the payer under the Income Tax Act, 1961.
“This position has been upheld in Princess Maheshwari Devi of Pratapgarh v. CIT (1984) 147 ITR 258 (Delhi), where the Delhi High Court clarified that a capital receipt without consideration does not attract tax,” Chandwani said.
On the other hand, periodic or monthly alimony, unless specifically structured as maintenance under judicial separation or legal obligation post divorce, may be construed as income under Section 56, particularly when it carries an element of regularity and is not for subsistence alone.
“However, courts have at times drawn a distinction between maintenance for survival (not taxable) and income with regularity and excess (taxable), making this a grey area in taxation. Notably, in both cases, the payer cannot claim deduction since alimony is not considered an expenditure incurred “wholly and exclusively” for the purposes of business or profession under Section 37,” she said.
“From a legal standpoint, Section 25 of the Hindu Marriage Act, 1955 empowers courts to grant permanent alimony to either spouse, taking into account income, conduct, and other circumstances. In parallel, Section 125 CrPC provides an independent and secular remedy for maintenance, primarily for wives, children, and parents, ensuring financial support in cases of neglect,” further added.
Indian courts have consistently held that maintenance is not a gratuitous benefit but a statutory right aimed at preventing vagrancy and destitution. Practically, lump sum settlements are strategically preferred by higher income spouses to avoid prolonged litigation, potential tax implications, and future variations under changed circumstances.
