No tax on lump sum amount received as permanent alimony

S.C. Vasudeva

Q. I am an employee of a private company getting an annual package of Rs 7 lakh. So far, I had been using ITR-1 as tax was being deducted by the company. During financial year 2017-18, I got divorced and received Rs 10 lakh as lump sum permanent alimony before passing of the decree of divorce. I invested Rs 8 lakh as FDR in a bank and Rs 2 lakh in equity linked mutual fund. For the assessment year 2018-19, I want to know:

(a) Whether Rs 10 lakh received as lump sum permanent alimony is taxable? If so, at what rate?

(b) If it is not taxable, which section of the I-T Act exempts it? If there is no specific section, whether there is any case law on the subject?

(c) Which ITR form should I use for AY 2018-19? And where should I show this amount of Rs 10 lakh even if it is exempted or not exempted?

(d) I intend to redeem the mutual fund units after one year. Where should I show the long-term capital gain tax in the relevant AY as the same is likely to be less than Rs 1 lakh. — Savita Devi

A. a) The amount of lump sum received as permanent alimony on account of your divorce is not taxable.

b) It is considered to be a capital receipt and, therefore, the provisions of Income-tax Act 1961 (The Act) are not applicable.   In view thereof, the amount of permanent alimony is not treated as income and thus not taxable. There is no particular section in the Act exempting such an amount but various courts have held that the amount of lump sum received as alimony is a capital receipt.

c) The relevant form for assessment year 2018-19 which would be applicable in your case is yet to be notified by the Central Board of Taxes.

d) The amount of long-term capital gain arising on redemption of equity linked units will have to be reflected in the column relating to exempt income.

Q. I am 90% physically handicapped employee of a public sector bank. My employer reimbursed me an amount of Rs 1,55,000 towards the cost of motorised wheelchair for the efficient discharge of my duties (as per GOI’s Ministry of Personnel instructions). My employer showed the above reimbursed amount as medical reimbursement (OPD) under which amount reimbursed above Rs 15,000 in a financial year is taxable, thus putting a heavy tax liability on me in respect of reimbursement for wheelchair. My query is whether the above amount of reimbursement is tax free and if not what can I do to save this liability. — Anil Kumar Gupta

A. There is no section in the Income-tax Act 1961 (The Act) which allows a deduction to a physically handicapped employee in respect of the amount reimbursed by an employer towards the cost of motorised wheelchair. You may please look up the Ministry’s instructions in case the Ministry has provided some guidance in this respect.

It may be added that if you are physically handicapped, you are otherwise entitled to claim deduction under Section 80U of the Act for a sum of Rs 1,25,000 since you are suffering from 90% disability which would be covered within severe disability.

Q. I would like to know if one can buy a commercial property by selling a residential plot. If so, within how much time? — JM Gupta

A. You can buy a commercial property by selling a residential plot. However, the amount of capital gain arising on the sale of a residential plot shall be taxable and the exemption from the taxability of a long-term capital gain under Section 54F of the Act would not be allowable. Such exemption is allowable if the amount of the net consideration (consideration accruing on the sale of the plot less expenditure incurred wholly and necessarily for making such sale) is utilised for the purchase or construction of a residential house within the prescribed time.