Tax Where Total Income Includes No-Tax Income: Section 190, Income Tax Act 2025
Section 190 of the Income Tax Act, 2025 applies when your total income includes an amount on which no income-tax is payable under the Act. You first work out tax on the whole total income. You then deduct from that tax an amount equal to the average rate of income-tax multiplied by the no-tax amount. The effect is that the no-tax income does not push up the tax on the rest of your income.
This guide explains the formula, shows it on two numbered examples for tax year 2026-27, and lists the mistakes that come up when the relief is missed. The text is from the Act as amended by the Finance Act, 2026. Amounts are tax before any surcharge, cess or rebate, which this article does not cover.
What does section 190 of the Income Tax Act 2025 say?
Section 190 sits in Chapter XIII (determination of tax in special cases). It says that where the total income of an assessee includes any income on which no income-tax is payable under the Act, the assessee is entitled to a deduction from the income-tax chargeable on the total income. The deduction equals the income-tax calculated at the average rate on the amount on which no tax is payable.
Two points follow from the wording. The relief is a deduction from tax, not from income. And it applies only when the no-tax amount is actually part of the total income that tax is being computed on.
What is the "average rate of income-tax"?
Section 2(16) defines it as the rate arrived at by dividing the income-tax calculated on the total income by that total income. It is a single blended percentage, not a slab rate.
| Item | How it is worked out |
|---|---|
| Total income (T) | Includes the no-tax amount (N) |
| Tax on total income (X) | Computed at the rates that apply to the assessee, for example the section 202(1) Table for an individual or HUF |
| Average rate | X divided by T (section 2(16)) |
| Section 190 deduction | Average rate multiplied by N |
| Tax payable | X minus the section 190 deduction |
How is the section 190 relief calculated? Two worked examples
Assumptions for both: tax year 2026-27, an individual taxed under the section 202(1) Table (nil up to Rs 4,00,000, 5% to Rs 8,00,000, 10% to Rs 12,00,000, 15% to Rs 16,00,000, 20% to Rs 20,00,000, 25% to Rs 24,00,000, 30% above). No rebate, surcharge or cess is considered.
Example 1: total income Rs 20,00,000, of which Rs 2,00,000 bears no tax.
| Step | Working | Amount |
|---|---|---|
| Tax on Rs 20,00,000 | Rs 0 + Rs 20,000 (5% of 4L) + Rs 40,000 (10% of 4L) + Rs 60,000 (15% of 4L) + Rs 80,000 (20% of 4L) | Rs 2,00,000 |
| Average rate | 2,00,000 / 20,00,000 | 10% |
| Section 190 relief | 10% of Rs 2,00,000 | Rs 20,000 |
| Tax payable | 2,00,000 - 20,000 | Rs 1,80,000 |
Example 2: total income Rs 14,00,000, of which Rs 3,00,000 bears no tax.
| Step | Working | Amount |
|---|---|---|
| Tax on Rs 14,00,000 | Rs 20,000 + Rs 40,000 + 15% of Rs 2,00,000 (Rs 30,000) | Rs 90,000 |
| Average rate | 90,000 / 14,00,000 | about 6.43% |
| Section 190 relief | 90,000 x 3,00,000 / 14,00,000 | about Rs 19,286 |
| Tax payable | 90,000 - 19,286 | about Rs 70,714 |
What does it look like in real life?
Ravi, a salaried employee. Ravi's total income for 2026-27 is Rs 3,50,000, and Rs 1,00,000 of it is an amount on which no tax is payable. Tax on Rs 3,50,000 is nil, so the average rate is 0% and the section 190 relief is nil. He has nothing to claim, and nothing to worry about.
Meena, a CA reviewing a client file. Meena's client has a total income of Rs 20,00,000 that includes Rs 2,00,000 of no-tax income. The first draft taxes the full Rs 20,00,000 and stops. Meena applies section 190, finds the Rs 20,000 relief from Example 1 and reduces the tax to Rs 1,80,000. She also notes the working in the file so the claim can be defended later.
Does section 190 cover agricultural income?
Section 190 does not name agricultural income. Agricultural income (defined in section 2(5)) is listed at Sl. No. 1 of the Table in Schedule II (see section 11) as income that is not included in total income, with no conditions. Because section 190 applies only to income that is included in total income, agricultural income as such is not the case it deals with. The Act text used for this article does not contain a separate method for taxing agricultural income at a blended rate, so check the specific provision for your client before applying the formula to it.
Can net agricultural income still affect advance tax?
Yes, in one place the Act says so. Section 405(2) states that for a class of assessees, where the Finance Act of the relevant year provides that net agricultural income is to be taken into account for computing advance tax, it is taken into account in the manner set out there. Under section 405(2)(b), in cases other than an Assessing Officer's order under section 407, the figure is the net agricultural income as estimated by the assessee for the tax year. The Act text used for this article does not set out the full rate computation itself, so confirm the current Finance Act provision for your client before relying on any blended-rate method for agricultural income.
Common mistakes
- Leaving the no-tax amount out of total income before computing tax. Section 190 works only when tax is first computed on a total income that includes it. If it is left out, the relief is wrongly claimed twice or the rate comes out too low.
- Using the top slab instead of the average rate. The relief uses the blended rate under section 2(16), not the marginal rate.
- Treating the relief as a deduction from income. It reduces tax, after the tax on total income is computed.
- Assuming every exempt-looking receipt qualifies. Confirm that tax is truly not payable on the amount under the Act before claiming relief on it.
- Rounding the average rate early. Use tax multiplied by N divided by T, as in Example 2, to avoid a drift of a few rupees.
Quick reference
| Question | Answer | Provision |
|---|---|---|
| Who gets the relief? | An assessee whose total income includes income on which no tax is payable | Section 190 |
| What is deducted? | Tax at the average rate on the no-tax amount | Section 190 |
| Average rate | Tax on total income divided by total income | Section 2(16) |
| Slabs used in the examples | Individual and HUF Table | Section 202(1) |
Where this is in the Act
- Section 190: determination of tax where total income includes income on which no tax is payable
- Section 2(16): average rate of income-tax
- Section 2(5): agricultural income; Schedule II (Table Sl. No. 1): excluded from total income
- Section 2(108): total income
- Section 405(2): net agricultural income in advance tax computation
- Section 202(1): slab rates for individuals, HUFs and similar persons
For the slabs used above, see our guide to the new tax regime slabs. For a CA firm, the practical issue is catching this relief across a client book at filing time. Finexo's practice management software helps track client computations and review tasks, so reliefs like this one get a checklist step. This article is information, not tax advice.
Frequently Asked Questions
What is section 190 of the Income Tax Act 2025?
It gives an assessee a deduction from tax where total income includes income on which no tax is payable. The deduction is tax at the average rate on that no-tax amount.
How do I calculate the average rate of income-tax?
Divide the income-tax calculated on the total income by the total income, as defined in section 2(16). For Rs 20,00,000 of income with tax of Rs 2,00,000, the average rate is 10%.
Is the section 190 relief a deduction from income or from tax?
From tax. You compute tax on the whole total income first, then deduct the average-rate tax on the no-tax amount.
Does section 190 apply if my total tax is nil?
The average rate is then 0%, so the relief is nil. There is nothing to deduct.
Does section 190 deal with agricultural income specifically?
No. It speaks only of income on which no tax is payable. Agricultural income is defined in section 2(5) and is excluded from total income by Schedule II (Table Sl. No. 1), so it does not fall under section 190 as such.
Is net agricultural income taken into account for advance tax?
Only where the Finance Act of the relevant year says so for a class of assessees. Section 405(2) then uses the net agricultural income estimated by the assessee for the tax year, except where an order under section 407 applies.