Income tax returns (ITR) filing: Marriage to divorce, this is how spouses can be impacted

Tax laws have some provisions dealing with incidence of marriage as well as divorce. Here are the broad provisions of income tax in this respect.

Gifts received during marriage
Under Section 56(2)(x)of Income Tax Act, gifts received by a person are fully taxable if the aggregate value of all the gifts received during the year exceeds Rs 50,000. However, there are certain exceptions to it. For example, gifts received at the occasion of marriage are fully exempt. Only gifts received by the couple during the marriage are exempt and not those received by other relatives during the marriage. Please think twice before you use this as a tax planning tool to convert your unaccounted money into white. In case you claim receipts of huge gifts, whether in cash or in kind, as received during your marriage and if your case is selected for detailed scrutiny, you may have to furnish confirmation of people who have given you the gifts. Moreover, you also will have to prove and explain details and source of money spent on your marriage. The marriage expenses should be commensurate with the value of gifts claimed to have been received by you.

Clubbing of income on gifts given to spouse
As per income-tax laws, any gift received from your spouse is fully tax free without any limit under Section 56(2)(x). However, any income, which accrues to you on the asset so gifted, is required to be included in the income of the donor and not the recipient. The subsistence of marriage is necessary, both at the time of receipt of the gift as well as at the time of clubbing of the income. So, in case any gift was given by you to your spouse before marriage, it would not be subject to this clubbing provision as the recipient was not your spouse when the gift was given. However, even for gifts made after marriage, the clubbing will cease to have effect after the couple is divorced. So after the divorce income from such asset will be included in the income of the person who had received it as gift and now is the owner of such asset.

Receipt of alimony
The courts generally grant alimony in combination of lumpsum and periodical payments, while decreeing the divorce. There are no clear cut provisions for tax treatment of alimony in the income tax laws, but the taxability of such alimony can be determined based on general tax provisions and court decisions. Any lumpsum alimony received at the time of divorce does not become taxable in the hand of the recipient. It is treated as capital receipt and also is in consideration for an agreement to live apart. Thus it goes out of the provisions of Section 56(2)(x) too. However, the periodic alimony received may become taxable as the same is not in the nature of capital receipt. However the person paying such alimony does not get any deduction for it against his income here in India unlike in US.

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Clubbing provisions for minor’s income
As per the Indian tax laws any income earned by a minor above Rs 1,500 in a year, is required to be clubbed with the income of the parent whose income is higher, as long as the marriage of the parents subsists. The clubbing provisions do not apply if the income is earned by the minor due to his skills, talent or personal efforts of the minor or the minor is suffering from any of the specified physical disabilities. Once the income is clubbed with a particular parent, it is required to be continuously clubbed with the same parent unless and until the assessing officer directs it to be clubbed with the income of other parent. Once the parents of such minor are divorced, the income of the minor shall be clubbed with the income of the parent who is maintaining such minor during the year. So in case of judicial custody cases the custody of the child is changed, the clubbing of income will also get changed depending on which parent is maintaining the minor.

By, Balwant Jain
(The writer is a tax and investment expert)
Source: DNA Money