Tax On Sale Of Property Received As Alimony

Property Received As Alimony : The sale of a property received as part of a divorce settlement is subject to capital gains tax, which the wife must pay on her own.

Assets transferred from one spouse to another during a marriage are not subject to income tax because the transfer is considered a gift. The provisions of Section 56 (ii) of the Income Tax Act of 1961 exempt such gifting from income tax implications. However, this is only true if no monetary exchange occurs.

When a married couple sells such a property, the profit is combined with the donor’s income, i.e., if the husband gifted a property to his wife, who later sold the property, the husband is responsible for paying the tax.

However, if a property is acquire as part of a divorce settlement, the tax implications are different. The ‘family’ aspect vanishes once the matrimonial bond is broken. As a result, if the wife sells a house she received as part of the divorce settlement, she will be solely responsible for paying capital gains tax on the profit received.



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How is the capital gains tax calculated on property sales?

The profit made on property sales is refer to as capital gains. As a result, the profit from the sale is taxable. The cost of acquisition by the original owner would be considere to determine the amount on which capital gains tax must be paid.

‘This means that if the husband paid Rs 50 lakh for the property. Transferred it to the wife during the divorce, and the now-ex-wife sells it for Rs 70 lakh, the profit earned on the sale would be Rs 20 lakh, on which the wife would have to pay capital gains tax. Depending on the holding period.’



Property Received As Alimony: The asset’s holding period

The asset holding period is divided into two categories for capital gains tax purposes: short-term capital gains and long-term capital gains.

Short-term assets are those that have been in the owner’s possession for less than 24 months. A long-term capital holding is one that lasts more than 24 months.

When the ex-wife sells the property received during the divorce. The holding period includes the entire time period, beginning with the original purchase and ending with the final sale.

‘This means that if a property is purchase in January 2020. Given as a divorce settlement in January 2021, and sold in March 2022. The total holding period is 26 months.’ The profit from such a sale would be considere long-term capital gains.’



Property Received As Alimony: The tax rate

If the sale qualifies as a long-term capital gain, the tax rate is 20%. This means that the seller would pay Rs 4 lakh in capital gains tax on a profit of Rs 20 lakh.

If the seller intends to reinvest the profit in the purchase or construction of another home. They can claim tax deductions under Section 54 of the Income Tax Act. The same holds true if the profit is invested in government-issue bonds.

If the property is sold within 24 months of purchase. The profit will be added to their annual income and tax accordingly. ‘That way, your tax liability could be much higher, unless you are a housewife with no source of income.’






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