Alimony and Taxation: Here’s what you need to know


For most women, getting divorced is a challenging step. It can be emotionally very disturbing and unsettling for many women and create a lot of confusion, be it emotionally or financially. Stress makes life further complicated and concentrating on finances becomes difficult. One needs to plan the process through and not proceed hastily. A part of this financial plan also includes understanding the tax audit format.          

If you are one of the many women planning your finances after divorce, here we help you
familiarise with the taxation process on alimony:      

When is alimony not taxable?

Under various circumstances, it is decided the entire amount that is to be paid as alimony will be given in a lump sum instead of instalments over a long period of time. The entire amount is paid in cash which is also known as one-time receipt. According to Bombay High Court’s order, the amount that is paid as alimony should be treated as a capital asset. Under the Income Tax Act, 1961, this does not fall under the income section.     

When is alimony taxable?  

Like in most cases, alimony is paid monthly. A certain amount of cash is paid to the woman that is treated as a revenue receipt. Hence, tax is collected under this category. In many countries, a man can claim this amount as a tax deduction. But in India, you will incur tax on this amount and the ex-husband cannot claim this amount as a tax deduction.            

Asset Transfer      

·         Any asset that can be treated as a gift will be taxable.
·         Besides immovable properties, assets that have a market value of above Rs 50,000 or more are taxable.     
·         In case the worth of the product when it was received is lower than the market value, which exceeds Rs 50,000, the difference will be taxable.
·         Any immovable asset such as shares whose value exceeds Rs 50,000 will be taxed.

What happens to the income from a transferred asset?  

After divorce, if any income is earned from an asset, the amount is taxable in case you are the recipient.  When you sell these assets, they will come under capital gains tax section and hence, will be taxed like any other asset that is being sold.
  
It is really important that you keep yourself updated with all the procedures of taxation. Check income tax notifications regularly.    


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