Tax on Alimony and Divorce Settlements in India: What Is Taxable, What Is Not (AY 2026-27)

Divorce is expensive enough without an unexpected tax demand two years later. Yet that is a common outcome, because the Income Tax Act does not contain a single section using the word "alimony." There is no chapter on divorce, no deduction for the person paying maintenance, and no clear statutory line on what happens when a flat is transferred under a consent decree.

This guide sets out the position for AY 2026-27 (FY 2025-26): what is taxable in the recipient's hands, what the payer can and cannot claim, and the traps that appear when the assets actually move.

Divorce Itself Is Not a Taxable Event

India assesses every individual separately: no joint filing, no married-couple slab, no filing-status box on the ITR that changes your tax. So the decree produces no tax liability of its own.

What produces tax consequences is everything happening around it: money changing hands, assets being transferred, and deductions that quietly stop being available because ownership or occupancy has changed.

Alimony and Maintenance: The Most Confusing Item

The Act is silent, so treatment comes from how courts have characterised the receipt, and the distinction that matters is whether the payment is recurring or a one-time settlement.

Monthly or Recurring Maintenance Is Taxable

Where an ex-spouse receives a periodic sum (say Rs 50,000 a month under a court order or mutual-consent settlement), the courts have treated it as a revenue receipt. It is taxable in the recipient's hands under Income from Other Sources, added to total income at slab rates.

If you receive Rs 6,00,000 of maintenance in a year and have no other income, that Rs 6,00,000 is your gross total income. Under the new regime for FY 2025-26, income up to Rs 12,00,000 attracts no tax after the Section 87A rebate, so many recipients of modest maintenance end up owing nothing. That is not a reason to skip filing: the receipt still needs to be disclosed, and large bank credits show up in your AIS.

Note also that the Rs 75,000 standard deduction does not apply, because that is a salary deduction and maintenance is not salary.

Lump-Sum Alimony Is Generally Treated as a Capital Receipt

Where the settlement is a one-time payment that extinguishes all future claims, the position has generally been that it is a capital receipt and not taxable as income. The reasoning, which goes back to a well-known Bombay High Court decision, is that a lump sum paid once and for all is not income arising periodically; it is consideration for giving up a right. Tribunals have followed the same line since, including where a lump sum replaced an existing monthly maintenance arrangement.

Two caveats:

• This is case law, not statute. There is no section to point an assessing officer to, which is why documentation matters so much.
• Once the lump sum is in your hands, any income it earns is fully taxable. Receive Rs 80,00,000 and park it in an FD at 7%, and that Rs 5,60,000 of annual interest is ordinary taxable income. The corpus is not taxed; the yield is.

The Payer Gets No Deduction, Ever

This surprises people who have read American tax advice. In India, the person paying alimony or maintenance receives no deduction of any kind, under either regime, and it comes out of post-tax income. There is no way to structure around this, and a draft agreement describing "tax deductible maintenance" is simply wrong.

The Section 56(2)(x) Trap: Timing Decides Everything

Section 56(2)(x) taxes money or property received without consideration above Rs 50,000, unless it comes from a "relative." A spouse is squarely a relative, with no upper limit. The problem is that after the decree, the other person is no longer your spouse, so a transfer made years later with no link to the settlement falls outside that exemption and can in principle be taxed as income from other sources.

The protection is straightforward: the settlement deed or consent terms should recite every transfer. Once a payment or property transfer discharges an obligation recorded in the decree, it is made for consideration (the relinquishment of maintenance and property claims), which takes it out of Section 56(2)(x) entirely. Informal transfers with nothing on paper are the ones that create arguments.

Transferring Assets: Capital Gains and the Cost That Follows the Asset

When a flat, shares or gold move from one spouse to the other under a settlement, two questions arise.

Does the transferor pay capital gains tax? Section 47 lists transfers not regarded as transfers for capital gains purposes, expressly covering gifts, wills and irrevocable trusts, but a divorce settlement transfer is not named in that list. In practice, transfers made under a decree recognising pre-existing rights are commonly treated on the same footing as a family arrangement, on the basis that no gain accrues. This is a genuinely grey area, so take professional advice before a high-value property transfer rather than after.

What cost does the recipient inherit? Where the transfer is treated as a gift, Section 49(1) applies: the recipient takes over the previous owner's cost of acquisition and holding period, which matters enormously later.

Suppose a flat bought in 2012 for Rs 40,00,000 is transferred to the wife under a 2025 settlement and sold by her in 2027 for Rs 1,40,00,000. Her cost is Rs 40,00,000, not the 2025 market value, so the tax lands on her on the full Rs 1,00,00,000 of appreciation, most of which accrued while she was married. Anyone accepting property instead of cash should price that embedded liability into the negotiation; our guide to capital gains on property sale covers the rate options and Section 54 relief.

Clubbing of Income Stops, and the Act Says So Explicitly

Under Section 64(1)(iv), income from an asset transferred to a spouse without adequate consideration is normally taxed back in the transferor's hands. This provision contains an express carve-out for assets transferred "in connection with an agreement to live apart."

So a transfer made as part of a separation or divorce settlement sits outside the clubbing net on the plain words of the section. The Supreme Court has separately held that the husband-wife relationship must exist both when the asset is transferred and when the income arises, reinforcing the same outcome once the marriage has ended.

From the date of the settlement, then, the recipient reports the rent, interest or dividend on that asset in their own return at their own slab. Where one spouse was in the 30% bracket and the other has little income, this is often the largest single change in the household tax bill. Our clubbing of income guide covers the wider rules that still apply to other relatives.

The Matrimonial Home

This is where most people lose deductions without noticing.

Home loan deductions follow ownership and payment, together. To claim interest under Section 24(b) or principal under Section 80C, you must be both an owner and a borrower, and you must actually pay the EMI. If you transfer the flat to your ex-spouse but keep servicing the loan, you are no longer an owner and get nothing, while they cannot claim either because they are not paying. If the loan stays in joint names, agree in writing who pays what share, because the deduction follows the actual contribution ratio.

Two self-occupied houses now attract nil annual value. From AY 2026-27 the conditions on the second self-occupied property have been relaxed, so an individual can treat up to two houses as self-occupied on a simple claim. When a separation leaves each person living in a different co-owned property, this is quietly useful.

Selling and splitting the proceeds. Each co-owner computes capital gains on their own share and can independently claim Section 54 relief by reinvesting in another residential house. Two owners means two separate exemptions, not one shared one.

Rent paid to an ex-spouse can support an HRA claim, because unlike a current spouse, an ex-spouse is an unrelated taxpayer. The claim needs to be real: a rent agreement, bank transfers rather than cash, and the landlord declaring the rental income. See our HRA exemption calculation guide for the computation and PAN reporting threshold.

Children: Maintenance, Clubbing and Deductions

Child maintenance is not the receiving parent's income. It is money applied for the child's benefit, and the paying parent gets no deduction for it.

A minor child's own income is clubbed with the parent who maintains the child, under Section 64(1A). After a separation that is the custodial parent, not necessarily the higher earner, and the Section 10(32) exemption of Rs 1,500 per child per year still applies.

Deductions go to whoever actually pays. Tuition fees under Section 80C (up to two children, old regime only) and education loan interest under Section 80E go to the parent who makes the payment and, for 80E, is the borrower. Section 80D covers self, spouse, dependent children and parents, so premiums for children remain claimable, but an ex-spouse does not qualify.

The Compliance Clean-Up Most People Skip

• Pre-validate the right bank account on the tax portal. A closed joint account is the most common reason a refund fails.

• If you have reverted to a maiden name, update PAN and Aadhaar and match your bank records. A mismatch blocks refunds and can make your PAN inoperative, covered in our PAN-Aadhaar linking guide.

• Watch joint account interest in your AIS. Interest on a joint FD is usually reported in full against the primary holder's PAN. If you hold it but are entitled to half, report your share and file AIS feedback for the rest rather than leaving an unexplained gap.

• Check your ITR form. Maintenance alone still fits ITR-1; selling the matrimonial home or holding transferred shares pushes you to ITR-2. 49Tax picks the form from your documents and pulls AIS entries in automatically, which is where joint-account mismatches usually surface.

• Re-run your regime choice. A large share of old-regime planning in a marriage rests on a joint home loan. Once that ends, if your 80C, 24(b) and 80D deductions total less than roughly Rs 4-4.5 lakh, the new regime is likely cheaper, with its Rs 75,000 standard deduction and no tax up to Rs 12.75 lakh of salary. Recompute rather than carrying last year's choice forward by habit.

The Takeaway

Get the settlement drafted with tax in mind, because almost every outcome here turns on documentation rather than on a section number. Recite each transfer in the decree or consent terms, keep the lump-sum and periodic components clearly separated, and confirm in writing who owns and who pays on any property that stays jointly held. A settlement drafted purely as a family-law document is still legally sound, but it can leave you arguing characterisation with an assessing officer three years later with nothing on paper to point at.