Money and marriage: How does the legal framework, tax rules work while deciding alimony after divorce settlement 

Alimony, also referred to as maintenance, is the financial assistance one spouse provides to the other during or after divorce or separation. The main objective of alimony is to assist the spouse with lower financial resources in maintaining a reasonable standard of living following the separation.

Earlier this month, the divorce of cricketer Yuzvendra Chahal and choreographer Dhanashree Verma created buzz. The Mumbai family court officially finalised their divorce, with reports indicating that Chahal paid an alimony amounting to Rs 4.75 crore.

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Alimony, also known as spousal support, is a legal requirement where one spouse must provide financial assistance to the other following a separation or divorce. Originally designed to support wives who may have given up financial independence for marriage and family, its purpose is shifting as more women join the workforce.

In India, alimony is regulated by various laws such as the Hindu Marriage Act, Special Marriage Act, Indian Divorce Act, Muslim Women Act, and Parsi Marriage and Divorce Act.

"Alimony and spousal maintenance remain crucial aspects of divorce proceedings in India, where courts strive to ensure financial equilibrium between the separating partners. The quantum and duration of the maintenance in such cases, depends upon various factors, with judicial precedents shaping the legal landscape," said Dinkar Sharma, Company Secretary and Partner, Jotwani Associates. 

Legal framework & key considerations in alimony decision

Indian courts assess maintenance claims under multiple laws, including:

•    Hindu Marriage Act, 1955 (Sections 24 & 25) – Addresses interim and permanent maintenance for spouses.
•    Special Marriage Act, 1954 (Sections 36 & 37) – Governs maintenance for interfaith marriages.
•    Bharatiya Nagarik Suraksha Sanhita, 2023 (Section 144) – Ensures maintenance irrespective of religion, focusing on the financial needs of the claimant.
•    Muslim Women (Protection of Rights on Divorce) Act, 1986 – Provides maintenance relief for divorced Muslim women.

The Supreme Court and High Courts have provided clear jurisprudence on how maintenance should be assessed. Among the key case laws:

1.    Rajnesh v. Neha (2020) – The Supreme Court mandated both spouses to submit a detailed affidavit disclosing their income, expenses, assets, and liabilities to ensure transparency in maintenance calculations.

2.    Kusum Sharma v. Mahinder Kumar Sharma (2020) – The Delhi High Court laid down standardized guidelines for courts to determine maintenance amounts, ensuring uniformity in approach.

3.    Bhuwan Mohan Singh v. Meena (2014) – The Supreme Court emphasized that maintenance should not be seen as charity but as a right, ensuring the spouse seeking support does not fall into financial hardship.

4.    Shailja &Anr v. Khobanna (2017) – The Supreme Court held that merely being capable of earning does not disentitle a wife from maintenance if she is not financially independent.

Key Factors Courts Consider in Alimony Determination

Courts weigh multiple elements while deciding maintenance, including:

•    Earning capacity & financial status – Both spouses' income, assets, and liabilities are scrutinized.
•    Standard of living during marriage – Courts aim to ensure the financially weaker spouse can maintain a lifestyle similar to what they were accustomed to.
•    Age & health of spouses – Older or ailing spouses may receive higher maintenance due to reduced earning potential.
•    Duration of marriage – Longer marriages generally warrant higher or longer-term maintenance.
•    Custody of children – The spouse bearing financial responsibility for children may receive additional maintenance support.
•    Misconduct of parties – Although Indian law largely follows a no-fault approach, extreme cases of misconduct (e.g., adultery or domestic violence) may influence alimony determinations.

"Indian courts have consistently reinforced that maintenance should be a fair and just remedy, preventing economic disparity after divorce. Judicial precedents and statutory provisions work together to ensure an equitable outcome, balancing financial necessity with the ability to pay," Sharma added.

Taxability of alimony in India

In India, the tax implications of alimony depend on the form of payment.

Lump-Sum Alimony: When alimony is given as a one-time lump sum, it is classified as a capital receipt and is not subject to taxation for the recipient.
Periodic Alimony: Alimony received in regular installments (such as monthly or annually) is regarded as income and is taxable for the recipient under the category of 'Income from Other Sources.'

For the Payers

Irrespective of whether alimony is paid in a lump sum or periodic fashion, these payments are viewed as personal expenses and are not eligible for tax deductions.

If alimony is provided through asset transfers:

Pre-Divorce: Transfers made without consideration before divorce are typically not subject to tax, as they are classified as gifts from relatives under Section 56(ii) of the Income Tax Act, 1961.
Post-Divorce: Following the divorce, these transfers are no longer regarded as gifts from relatives and could be taxable for the recipient if their value surpasses Rs 50,000.