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TMI BlogDetermination of tax liability which no tax is payable under the provisions of the Act : Clause 190 of the Income Tax Bill, 2025 Vs. Section 110 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ivotal in ensuring fairness in the computation of income tax, preventing the taxpayer from being unduly burdened by the inclusion of exempt or non-taxable income in their total income. The legislative intent behind these sections is to provide a mechanism for deducting the tax attributable to such exempt income, thereby aligning the actual tax liability with the taxable portion of the income. This commentary analyzes Clause 190 in detail, explores its objective and practical implications, and provides a comparative analysis with the existing Section 110. The discussion further considers the historical and policy context, interpretative issues, and the provision's impact on stakeholders. Objective and Purpose The primary objective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 190 of the Income Tax Bill, 2025 Breakdown of Key Elements * Inclusion of Non-Taxable Income in Total Income: Clause 190 applies where the computation of total income, as per the provisions of the Act, includes income that is otherwise not chargeable to tax. This is often seen in cases where, for the purposes of determining the applicable tax rate, non-taxable income is aggregated with taxable income. * Entitlement to Deduction: The provision grants the assessee a right to claim a deduction from the total income-tax liability. This deduction is not from the total income itself but from the calculated tax liability. * Quantum of Deduction - Average Rate Calculation: The deduction is quantified as the income-tax that would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation involves: * Computing total income as per the Act (including the exempt income). * Calculating total tax payable on such total income. * Determining the average rate of tax (Total tax payable / Total income). * Multiplying the average rate by the exempt income to arrive at the deduction. * Deducting this amount from the total tax payable to arrive at the final tax liability. Illustrative Example Suppose an assessee has a total income of Rs. 10,00,000, which includes Rs. 2,00,000 of income exempt from tax. The total tax payable on Rs. 10,00,000 is Rs. 1,12,500. The average rate is 11.25%. The deduction allowable under Clause 190 would be 11.25% of Rs. 2,00,000 = Rs. 22,500. The final tax liability would thus be Rs. 1,12,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income but is exempt u/s 10(2A). * HUFs and Trusts: Where income exempt under specific provisions is included in the computation of total income. Compliance and Procedural Aspects Taxpayers must accurately identify income that qualifies for the deduction under Clause 190 and compute the deduction at the average rate. Failure to do so may result in excess tax payment or disputes with tax authorities. Tax return forms and computation sheets must provide for the disclosure and computation of such deductions. Tax authorities must verify the correctness of claims under Clause 190, ensuring that only statutorily exempt income is considered and that the average rate is correctly applied. Administrative and Regulatory Implications From an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in certain special cases," indicating continuity in legislative approach. * Legislative Continuity and Policy Rationale: The replication of Section 110 in Clause 190 underscores the continued relevance of the principle and the legislature's intention to maintain consistency in the treatment of exempt income within the computation of total income. Differences and Developments * Modernization and Clarity: While the core provision remains unchanged, the Income Tax Bill, 2025 may introduce supporting rules or clarifications in the future to address ambiguities identified in the operation of Section 110. The Bill may also incorporate more detailed definitions or procedural guidance in the accompanying rules or schedules. * Integrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islative framework, ensuring continuity and legal certainty. Substantive Features and Continuity * Scope: Both provisions apply to cases where exempt income is included in the total income. * Mechanism: Both prescribe deduction of tax at average rate on exempt income. * Computation: Both require computation of average rate and application to exempt income. * Purpose: Both aim to prevent taxation of income not chargeable under the Act. There is no substantive change in the scope, applicability, or mechanism of the provision in the transition from Section 110 to Clause 190. Potential for Reform or Clarification Given the continuity, the issues and ambiguities that existed u/s 110 may persist under Clause 190 unless addressed by su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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