Deduction of tax at source under section 195 of the Income-tax Act, 1961--Correct rates of tax applicable--Regarding - Income Tax - 728

Deduction of tax at source under section 195 of the Income-tax Act, 1961--Correct rates of tax applicable--Regarding. Circular No. 728 Dated 30/10/1995 To All Chief Commissioners of Income-tax. Sir, 1. It has been represented to the Board that when making remittances of the nature of royalties and technical fees, tax is being deducted at source at the rates specified in the Finance Act of the relevant year, without taking into account the special rates for taxation of such income provided for under the Double Taxation Avoidance Agreement with the country concerned. 2. The expression "rates in force" has been defined in section 2(37A) of the Income-tax Act. Under sub-clause (iii) of section 2(37A), for the purposes of deduction of tax under section 195, the expression is to mean the rate or rates of income-tax specified in this behalf in the Finance Act in the relevant year or the rates of tax specified in the Double Taxation Avoidance Agreement entered into by the Central Government whichever is applicable by virtue of the provisions of section 90 of the Income-tax Act, 1961. 3. It is hereby clarified that in view of the provisions of sub-section (2) of section 90 of the Act, in the case of a remittance to a country with which a Double Taxation Avoidance Agreement is in force, the tax should be deducted at the rate provided in the Finance Act of the relevant year or the rate provided in the DTAA, whichever is more beneficial to the assessee. Yours faithfully, (Sd.) Siddhartha Mukherjee, Secretary, Central Board of Direct Taxes.