Chahal-Dhanashree divorce: Alimony rules for working women in India, what are tax implications?

The Bombay High Court has fast-tracked the divorce proceedings between cricketer Yuzvendra Chahal and choreographer Dhanashree Verma, instructing the Bandra family court to finalize their separation by March 20. 

The court waived the mandatory six-month cooling-off period, citing their mutual consent and prolonged separation since June 2022.

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As part of the settlement, Chahal is set to pay ₹4.75 crore as alimony to Verma. He has already transferred ₹2.37 crore, with the remainder due upon the finalization of their divorce. Their case brings renewed attention to alimony laws in India, particularly for working women.

How alimony is determined in India?

Alimony, or spousal support, is a legal obligation requiring one spouse to provide financial assistance to the other after separation or divorce. Traditionally viewed as a means to support wives who may have sacrificed financial independence for marriage and family, its role is evolving as more women enter the workforce.

In India, alimony is governed by multiple laws, including the Hindu Marriage Act, Special Marriage Act, Indian Divorce Act, Muslim Women Act, and Parsi Marriage and Divorce Act. Courts assess various factors before awarding alimony, including the financial standing of both spouses, their standard of living during the marriage, the length of the marriage, and any child custody arrangements.

Even if a woman is working, she may still receive alimony if there is a significant income disparity between her and her spouse. However, if she is financially stable, the alimony amount may be reduced or denied. “The goal is to ensure neither spouse faces financial difficulties after the separation,” said Piyush Tiwari, Associate, TAS Law.

Asset protection and prenuptial agreements

To safeguard assets during a divorce, legal experts recommend financial planning well in advance. “Keeping detailed records of assets owned before marriage, using trusts to manage assets, and maintaining separate bank accounts can help distinguish personal wealth from marital property,” said Tiwari.

While prenuptial agreements offer a structured financial framework, they are not legally enforceable in India and can be challenged in court. “The education and qualification of a working woman do not automatically bar her from claiming maintenance,” noted Ankur Mahindro, Managing Partner, Kred Jure. However, courts may deny alimony if they determine she is self-sufficient.

Is alimony taxable?

In India, the taxability of alimony depends on its form. A one-time lump sum alimony payment is considered a capital receipt and is not taxable in the hands of the recipient, as it is treated as a non-taxable capital asset. However, recurring alimony payments, such as monthly or yearly support, are classified as revenue receipts and are taxable under 'Income from Other Sources.' The recipient must declare these payments in their income tax return and pay taxes according to their applicable income tax slab.

Alimony through asset transfers also has tax implications. If assets are transferred before the divorce, they may be tax-exempt as gifts from relatives. However, if the transfer occurs after the divorce, the recipient is liable to pay tax on the received assets. Notably, the payer of alimony cannot claim any tax deductions for these payments. In summary, only recurring alimony payments are taxable, while one-time settlements and pre-divorce asset transfers generally remain tax-free.