If alimony is paid monthly, it is generally treated as a revenue receipt for the recipient. Since there is no specific exemption under the Act, such payments may be taxed under the head “Income from Other Sources” as per Section 56. This means the spouse receiving monthly maintenance could have to pay tax on it. Meanwhile, the person paying the alimony cannot claim any tax deduction, as the Income Tax Act does not provide for one.
On the other hand, if alimony is paid as a one-time lump sum settlement, it is usually considered a capital receipt and is not taxable in the hands of the recipient. Indian courts have upheld this interpretation in several judgments, including Princess Maheshwari Devi of Pratapgarh vs CIT, where a lump-sum settlement made in exchange for relinquishing future maintenance rights was ruled non-taxable. This is because such payments are viewed as compensation for the loss of a capital asset — the right to maintenance — and not as regular income.
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In short, monthly maintenance is generally taxable, while one-time settlements are tax-free. However, since tax treatment can vary depending on the divorce terms and documentation, it’s advisable for both parties to consult a qualified tax professional before finalizing any agreement. Understanding these rules can prevent future disputes and ensure compliance with Indian tax laws.
