Section 190 of the Income-tax Act, 2025 — Determination of Tax Where Income Includes Non-Taxable Income

In plain language

What Section 190 actually deals with

Section 190 of the Income-tax Act, 2025 is titled "Determination of tax where total income includes income on which no income-tax is payable." It is the direct successor to Section 110 of the old Income-tax Act, 1961, and the language has been carried forward almost word-for-word. A quick note on a common mix-up: this section has nothing to do with transfer pricing or with TDS — under the 1961 Act it was Section 190 that dealt with "deduction at source and advance payment," but the numbering has been completely re-organised in the 2025 Act, so Section 190 (2025) is a computation-relief provision, not a TDS provision.

In plain English: sometimes a taxpayer's total income includes a slice of income that the Act says is chargeable in principle but on which no income-tax is actually payable. Because Indian tax is charged on a slab/progressive basis, simply adding that slice into total income can push the rest of the income into a higher effective bracket. Section 190 corrects this by granting a deduction from the tax payable — equal to tax computed at the average rate of income-tax on that non-taxable slice — so the taxpayer is not indirectly taxed on income that was never meant to be taxed.

Who it applies to

• Any assessee — individuals, HUFs, firms, LLPs, companies, AOPs/BOIs — whose total income for the year includes an amount on which "no income-tax is payable under the provisions of this Act."
• It is most relevant where a receipt is included in total income for rate purposes but bears nil tax under a specific charging or relief provision.
• It is not a section you claim for ordinary exempt income (e.g. agricultural income or PF interest) that is excluded from total income altogether — those are handled by their own exemption sections. Section 190 operates only when the income sits inside total income yet carries no tax.

The mechanism — average rate of income-tax

The heart of the section is the phrase "average rate of income-tax." This is a defined term and simply means:

• Average rate = Total income-tax on total income ÷ Total income.
• You then apply this average rate to the amount on which no tax is payable.
• The resulting figure is deducted from your gross tax liability.

So the steps are: (1) compute total income including the nil-tax slice; (2) compute tax on that total; (3) work out the average rate; (4) multiply the average rate by the nil-tax amount; (5) subtract that product from the tax. The net effect is that the nil-tax slice is stripped out at the taxpayer's own average rate, neutralising the "bracket-creep" it would otherwise cause.

How it interacts with related sections

• Slab rates / Finance Act rates: the average rate is derived from whatever slab or flat rate applies to the assessee for that year, so Section 190 automatically tracks the current rate schedule.
• Special-rate incomes (capital gains, lottery, etc.): where income is taxed at a special flat rate under its own section, Section 190's average-rate relief interacts carefully — the section only removes tax on amounts on which no tax is payable, not on specially-rated income.
• Rebate under Section 156 (2025) [old 87A]: Section 190 is applied at the tax-computation stage, before or alongside rebates, so both can reduce the final liability.
• Successor to old Section 110: case-law and CBDT guidance on the 1961 Section 110 remains a useful interpretive guide, since the substance is unchanged.

Practical implications

• It is a relief provision, not a charging provision — it can only reduce, never increase, your tax.
• It ensures tax equity: you pay tax only on the part of your income that is genuinely chargeable, and are not penalised because a nil-tax amount inflated your income for rate purposes.
• For most salaried and small taxpayers it operates silently inside the ITR computation utility — you rarely claim it by hand; the system applies the average-rate logic automatically.
• Accuracy matters: wrongly treating fully exempt income (excluded from total income) as "nil-tax income within total income" can lead to an incorrect claim, so classify the receipt correctly first.