190.1 Deduction of Income tax on Non Taxable Income
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Section 190 Where any income on which no income-tax is payable under the provisions of this Act is included in the total income of an assessee, assessee shall be entitled to a deduction of income-tax calculated at the average rate of income-tax on such non taxable income from gross income-tax with is payable on his total income,. |
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Non taxable Income = income on which no income-tax is payable under the provisions of this Act |
190.1.1 Steps for calculation of deduction of tax on non taxable income
Step 1: Calculate Gross Tax Payable: Determine the tax on the entire total income (including the non-taxable part).
Step 2: Determine average rate of tax
Average Rate of Tax = Total Income Tax Payable on Total Income/Total Income
Step 3: Compute deduction u/s 190
Deduction Amount = Non-taxable Income*Average Rate of Tax
190.1.2 Practical Illustration
Taxable Business Income: ₹16,00,000
Income on which no tax is payable (but included in Total Income calculation): ₹4,00,000
Total Income: ₹20,00,000
Assumed Tax on Total Income of ₹20 Lakhs (for ease of calculation, including cess/slabs): ₹3,00,000
Step-by-Step Computation:
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Step |
Particulars |
Amount (₹) |
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Step 1 |
Total Income (₹16L taxable + ₹4L non-taxable) |
₹20,00,000 |
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Step 2 |
Calculate Income Tax on Total Income |
₹3,00,000 |
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Step 3 |
Calculate Average Rate of Tax = ₹3,00,000/₹20,00,000 |
15% |
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Step 4 |
Deduction u/s 190 = ₹4,00,000*15% |
(₹60,000) |
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Step 5 |
Net Tax Payable by the Assessee |
₹2,40,000 |