Marriage and Divorce Tax Rules: Marriage and divorce are among the most critical decisions in life, but their impact extends beyond personal relationships. These events also affect your tax planning in many ways. From wedding gifts and financial transactions between spouses to children’s income and alimony after divorce, income tax laws apply different rules to each situation. Many people are unaware of these provisions, which often leads to confusion and tax-related issues later.
In this article, we explain in simple language what is tax-free, what is taxable, and which key points you should keep in mind.
Tax Rules on Wedding Gifts
Under income tax rules, if a person receives gifts worth more than ₹50,000 in a financial year, the excess may be taxable. However, gifts received by the bride and groom on the occasion of marriage are completely tax-free, regardless of their value. This exemption applies only to the couple getting married. Gifts received by relatives or guests attending the wedding do not enjoy this benefit and may be taxable if they cross the prescribed limit.
Risk of Showing Unaccounted Money as Wedding Gifts
Some people try to show unaccounted income as wedding gifts, but this can be extremely risky. Tax authorities may request proof of marriage, including photographs, guest lists, and expense details. If the gifts are found to be fake or unexplained, the amount may be subject to tax at up to 60 per cent, along with penalties and interest.
Money and Property Transfers Between Husband and Wife
A husband and wife can gift money, property, or shares to each other without any immediate tax liability. However, income from such gifts, such as interest, rent, or dividends, is taxable. This income is added to the spouse with the higher total income. This provision is known as the clubbing rule. Once a divorce takes place or in the event of the death of one spouse, this rule no longer applies.
Tax Treatment of Minor Children’s Income
Income earned by minor children can broadly fall into two categories. Income such as interest, rent, or dividends is clubbed with the income of the parent who earns the higher income. In such cases, a tax exemption of ₹1,500 per child is allowed. However, income earned by the child through personal skills or talent, such as acting or singing, is not clubbed with the parents’ income. The income of disabled children is also excluded from clubbing provisions.
Alimony and Its Tax Implications
India does not have a separate, specific tax law for alimony. The tax treatment depends on how the alimony is paid. If alimony is paid as a lump sum amount, it is generally considered tax-free for the recipient. On the other hand, monthly or periodic alimony payments are typically treated as taxable income for the recipient. The person paying alimony does not receive a tax deduction for these payments.
Conclusion
Tax rules related to marriage and divorce can seem complicated, but having the proper knowledge can help you avoid unnecessary trouble. Before taking any significant financial decision related to marriage, separation, or family income, it is always wise to understand the applicable tax provisions. In complex cases, consulting a tax expert can help ensure compliance and better financial planning.