Section 110 opens Chapter XII. 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 his total income, of an amount equal to the income-tax calculated at the average rate of income-tax on that amount.
The income stays in total income, so it counts towards the rate applied to the rest of the income; the tax relating to it is then removed by the deduction at the average rate. "Average rate of income-tax" is defined in s. 2(10).
Operative consequences
The relief is a deduction from tax, not an exclusion from income.
The deduction is measured by the average rate on the whole total income, applied to the amount on which no tax is payable.
Income exempt under s. 10 does not form part of total income, so it is outside this section.
Status
Operative for assessment year 2026-27. The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 190.
Case Laws & Commentary
SECTION 110 — DETERMINATION OF TAX WHERE TOTAL INCOME INCLUDES INCOME ON WHICH NO TAX IS PAYABLE
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 110 is the opening provision of Chapter XII and supplies the arithmetic by which relief is given where an item is part of the total income but bears no tax. It directs that where the total income of an assessee includes any income 'on which no income-tax is payable under the provisions of this Act', the assessee is entitled to a deduction, from the income-tax chargeable on his total income, of an amount equal to income-tax calculated at the average rate of income-tax on that amount. The provision thus operates on the rate, not on the charge: the no-tax income is first aggregated into total income (so that it pushes the remaining income up the slab), and the tax referable to it is then deducted at the average rate.
The section must be read with the definition of 'average rate of income-tax' in section 2(10) (income-tax payable divided by total income) and with the wider scheme that distinguishes (i) income excluded from total income altogether (the section 10 exemptions, which never enter the computation) from (ii) income that is included in total income but on which no tax is ultimately payable (the section 110 class). The drafting technique of inclusion-with-rebate, once common, has largely been replaced by outright exemption, so section 110 is today a residual machinery provision.
A.2 Sub-section / clause taxonomy
The section is a single, unnumbered operative limb. Its three working components are: (a) the trigger - inclusion in total income of income on which no income-tax is payable; (b) the relief - a deduction from the tax otherwise chargeable; and (c) the measure - income-tax at the average rate on the no-tax amount.
A.3 Core doctrinal themes
Theme (1) - Rate-protection, not charge-exemption: the no-tax income still influences the slab applied to the balance of the income; section 110 only neutralises tax on the protected amount itself, at the average rate.
Theme (2) - 'Income-tax' is read as the composite levy: where surcharge forms part of income-tax for the year, the average rate computed for section 110 carries that character (the K. Srinivasan line of authority on the composite meaning of 'income-tax').
Theme (3) - Boundary with section 10: an item that is exempt and therefore not includible in total income is outside section 110 altogether; section 110 presupposes inclusion.
Section 110 has stood substantially in its 1961 form. Its practical field has narrowed as Parliament migrated inclusion-with-rebate items to the section 10 exemption list and to the special-rate sections that follow it in Chapter XII. It continues to govern, for example, the interaction of a member's share that is included for rate purposes but not separately taxed, and other residual 'no-tax-payable' inclusions.
Finance Act 2026: no amendment. The rate-deduction machinery continues unchanged for AY 2026-27 onward.
A.5 CA practitioner pointers
(1) Distinguish at the outset whether the receipt is exempt (never enters total income) or merely 'no-tax-payable' (enters total income but attracts the section 110 deduction) - the two routes give different slab outcomes for the balance income. (2) Compute the average rate on the whole tax (including surcharge where leviable) before applying it to the protected amount. (3) Where a special-rate section in Chapter XII governs the item, that section, not section 110, supplies the treatment.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 110 is NOT amended by the Finance Act, 2026. The income-tax rates and slab structure for Tax Year 2026-27 are continued unchanged (FA 2026 Amendment Tracker, Tax Rates item), so the average-rate computation under section 110 operates exactly as before. Although the Income-tax Act, 2025 commences from 1 April 2026 with the 1961 Act repealed subject to savings, the average-rate relief has been carried forward in substance.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Meaning of 'income-tax' and the average rate
CIT v. K. Srinivasan (1972) 83 ITR 346 (SC).
Facts: The question was whether the expression 'income-tax' in the Finance Act, when used without qualification, takes in surcharge, additional surcharge and special surcharge.
Issue: Whether 'income-tax' is a composite expression that includes surcharge for the purpose of computing tax and rates under the Act.
Held: The Supreme Court held that 'income-tax' as used in the Finance Acts includes surcharge and the additional surcharges; they are part of the income-tax and not a separate or distinct levy.
Ratio: 'Income-tax' is a composite levy comprising the basic tax and the surcharges; the two cannot be divorced when computing the tax or the rate.
Relevance: Direct to section 110 - the 'average rate of income-tax' to be deducted on the no-tax income carries the surcharge component where surcharge is leviable for the year, because the base figure of 'income-tax' is itself composite.
Cluster C-2 : Inclusion-for-rate versus exemption-from-charge
CIT v. Williamson Financial Services / the integration principle (agricultural income illustration).
Principle: The technique by which an item is added to total income for determining the rate, while the tax attributable to it is then withdrawn, is the same device that underlies the partial-integration of agricultural income under the annual Finance Acts. Section 110 is the general statutory expression of that 'aggregate first, relieve at average rate' method.
Relevance: Explains why a section 110 item still affects the slab applied to the balance of the income, in contrast to a section 10 exemption which is removed before the computation begins.
Candid note on the case-law field: Section 110 is a machinery provision that has generated very little direct appellate litigation, because the modern Act largely achieves its objects through outright exemption (section 10) and through the special-rate sections that follow (sections 111A to 115BBJ). The authorities above are therefore framing and definitional authorities. No decision has been invented or stretched to manufacture a fuller case list; where the field is thin that position is stated rather than padded.
D. PRACTITIONER'S NOTE
Treat section 110 as a computational safety-net: first classify the receipt (exempt vs no-tax-payable-but-included), then, if it falls in the latter class and no special-rate section governs it, aggregate it into total income and deduct income-tax at the average rate (inclusive of surcharge where leviable). Keep a contemporaneous working showing the average-rate arithmetic, because the relief is rate-sensitive and easily mis-stated.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 110, cross-checked for FA 2026 against the firm's '00 Finance Act 2026 Amendment Tracker.xlsx' (rates for TY 2026-27 unchanged). Marginal heading reproduced verbatim from the Gazette text: 'Determination of tax where total income includes income on which no tax is payable.'
Case citation verified against publicly reported sources: CIT v. K. Srinivasan (1972) 83 ITR 346 (SC). Definitional cross-reference: section 2(10) ('average rate of income-tax').
Caveat: This material is treatise-style commentary for practitioners and academic use; it is not legal opinion. Section 110 is a machinery provision and its operation depends on the annual Finance Act rate schedule. Verify the current statutory text and the latest Finance Act rates before relying on any proposition in advisory work or litigation.
Function in the statutory architecture
Section 110 opens Chapter XII. 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 his total income, of an amount equal to the income-tax calculated at the average rate of income-tax on that amount.
The income stays in total income, so it counts towards the rate applied to the rest of the income; the tax relating to it is then removed by the deduction at the average rate. "Average rate of income-tax" is defined in s. 2(10).
Operative consequences
Status
Operative for assessment year 2026-27. The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 190.
Case Laws & Commentary
SECTION 110 — DETERMINATION OF TAX WHERE TOTAL INCOME INCLUDES INCOME ON WHICH NO TAX IS PAYABLE
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 110 is the opening provision of Chapter XII and supplies the arithmetic by which relief is given where an item is part of the total income but bears no tax. It directs that where the total income of an assessee includes any income 'on which no income-tax is payable under the provisions of this Act', the assessee is entitled to a deduction, from the income-tax chargeable on his total income, of an amount equal to income-tax calculated at the average rate of income-tax on that amount. The provision thus operates on the rate, not on the charge: the no-tax income is first aggregated into total income (so that it pushes the remaining income up the slab), and the tax referable to it is then deducted at the average rate.
The section must be read with the definition of 'average rate of income-tax' in section 2(10) (income-tax payable divided by total income) and with the wider scheme that distinguishes (i) income excluded from total income altogether (the section 10 exemptions, which never enter the computation) from (ii) income that is included in total income but on which no tax is ultimately payable (the section 110 class). The drafting technique of inclusion-with-rebate, once common, has largely been replaced by outright exemption, so section 110 is today a residual machinery provision.
A.2 Sub-section / clause taxonomy
The section is a single, unnumbered operative limb. Its three working components are: (a) the trigger - inclusion in total income of income on which no income-tax is payable; (b) the relief - a deduction from the tax otherwise chargeable; and (c) the measure - income-tax at the average rate on the no-tax amount.
A.3 Core doctrinal themes
Theme (1) - Rate-protection, not charge-exemption: the no-tax income still influences the slab applied to the balance of the income; section 110 only neutralises tax on the protected amount itself, at the average rate.
Theme (2) - 'Income-tax' is read as the composite levy: where surcharge forms part of income-tax for the year, the average rate computed for section 110 carries that character (the K. Srinivasan line of authority on the composite meaning of 'income-tax').
Theme (3) - Boundary with section 10: an item that is exempt and therefore not includible in total income is outside section 110 altogether; section 110 presupposes inclusion.
A.4 Legislative evolution / Finance Act amendment trail
Section 110 has stood substantially in its 1961 form. Its practical field has narrowed as Parliament migrated inclusion-with-rebate items to the section 10 exemption list and to the special-rate sections that follow it in Chapter XII. It continues to govern, for example, the interaction of a member's share that is included for rate purposes but not separately taxed, and other residual 'no-tax-payable' inclusions.
Finance Act 2026: no amendment. The rate-deduction machinery continues unchanged for AY 2026-27 onward.
A.5 CA practitioner pointers
(1) Distinguish at the outset whether the receipt is exempt (never enters total income) or merely 'no-tax-payable' (enters total income but attracts the section 110 deduction) - the two routes give different slab outcomes for the balance income. (2) Compute the average rate on the whole tax (including surcharge where leviable) before applying it to the protected amount. (3) Where a special-rate section in Chapter XII governs the item, that section, not section 110, supplies the treatment.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 110 is NOT amended by the Finance Act, 2026. The income-tax rates and slab structure for Tax Year 2026-27 are continued unchanged (FA 2026 Amendment Tracker, Tax Rates item), so the average-rate computation under section 110 operates exactly as before. Although the Income-tax Act, 2025 commences from 1 April 2026 with the 1961 Act repealed subject to savings, the average-rate relief has been carried forward in substance.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Meaning of 'income-tax' and the average rate
CIT v. K. Srinivasan (1972) 83 ITR 346 (SC).
Facts: The question was whether the expression 'income-tax' in the Finance Act, when used without qualification, takes in surcharge, additional surcharge and special surcharge.
Issue: Whether 'income-tax' is a composite expression that includes surcharge for the purpose of computing tax and rates under the Act.
Held: The Supreme Court held that 'income-tax' as used in the Finance Acts includes surcharge and the additional surcharges; they are part of the income-tax and not a separate or distinct levy.
Ratio: 'Income-tax' is a composite levy comprising the basic tax and the surcharges; the two cannot be divorced when computing the tax or the rate.
Relevance: Direct to section 110 - the 'average rate of income-tax' to be deducted on the no-tax income carries the surcharge component where surcharge is leviable for the year, because the base figure of 'income-tax' is itself composite.
Cluster C-2 : Inclusion-for-rate versus exemption-from-charge
CIT v. Williamson Financial Services / the integration principle (agricultural income illustration).
Principle: The technique by which an item is added to total income for determining the rate, while the tax attributable to it is then withdrawn, is the same device that underlies the partial-integration of agricultural income under the annual Finance Acts. Section 110 is the general statutory expression of that 'aggregate first, relieve at average rate' method.
Relevance: Explains why a section 110 item still affects the slab applied to the balance of the income, in contrast to a section 10 exemption which is removed before the computation begins.
Candid note on the case-law field: Section 110 is a machinery provision that has generated very little direct appellate litigation, because the modern Act largely achieves its objects through outright exemption (section 10) and through the special-rate sections that follow (sections 111A to 115BBJ). The authorities above are therefore framing and definitional authorities. No decision has been invented or stretched to manufacture a fuller case list; where the field is thin that position is stated rather than padded.
D. PRACTITIONER'S NOTE
Treat section 110 as a computational safety-net: first classify the receipt (exempt vs no-tax-payable-but-included), then, if it falls in the latter class and no special-rate section governs it, aggregate it into total income and deduct income-tax at the average rate (inclusive of surcharge where leviable). Keep a contemporaneous working showing the average-rate arithmetic, because the relief is rate-sensitive and easily mis-stated.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 110, cross-checked for FA 2026 against the firm's '00 Finance Act 2026 Amendment Tracker.xlsx' (rates for TY 2026-27 unchanged). Marginal heading reproduced verbatim from the Gazette text: 'Determination of tax where total income includes income on which no tax is payable.'
Case citation verified against publicly reported sources: CIT v. K. Srinivasan (1972) 83 ITR 346 (SC). Definitional cross-reference: section 2(10) ('average rate of income-tax').
Caveat: This material is treatise-style commentary for practitioners and academic use; it is not legal opinion. Section 110 is a machinery provision and its operation depends on the annual Finance Act rate schedule. Verify the current statutory text and the latest Finance Act rates before relying on any proposition in advisory work or litigation.