Circular No. 728 — Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and

What this is

Circular No. 728 was issued by the Central Board of Direct Taxes on 30 October 1995. Its subject is Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and the United Arab Emirates.

This one is about a tax treaty. India’s treaties enter Indian law by notification under section 90; where the instrument below is that notification, its date decides from when the treaty may be applied, and where it is a circular, it is the Board telling its officers how it reads the treaty — which is not the same thing.

What it does

Directs that where a remittance goes to a country with which a double taxation avoidance agreement is in force, tax is to be deducted at the rate in the Finance Act of the relevant year or the rate in the agreement, whichever is more beneficial to the assessee. The Board reaches this through section 2(37A)(iii), under which rates in force for section 195 deduction means the rates specified in the Finance Act or those in the agreement, whichever applies by virtue of section 90, read with section 90(2). The occasion was remittances of royalties and technical fees to the United Arab Emirates, on which deduction was being made at Finance Act rates without regard to the treaty rates.

Why it was issued

It was represented to the Board that on remittances of royalties and technical fees tax was being deducted at Finance Act rates without taking into account the special rates provided in the relevant double taxation avoidance agreement.

Who it reaches

Indian payers remitting royalties or technical fees abroad
Non-resident recipients in treaty countries
Bankers processing outward remittances
Assessing Officers deciding applications under section 195(2) and section 197

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.2	s.2, s.346, s.355
s.90	s.159
s.195	s.393, s.395, s.397, s.400

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Applicable rates of taxes under the Double Taxation Avoidance Agreement between India and the United Arab Emirates
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 at the rate provided in the DTAA, whichever is more beneficial to the assessee.
Circular : No. 728, dated 30-10-1995.

What to watch

The comparison is rate against rate and the more beneficial one governs; it is not a licence to disregard the Finance Act altogether.
Although the circular is headed for the United Arab Emirates agreement, its reasoning is put in general terms for any country with a treaty in force.
Treaty benefit depends on the treaty applying to the recipient, which the payer must satisfy himself of.
The statutory conditions attached to treaty relief, such as furnishing a residence certificate, came in later and are not in this text.

Where you meet it

In a section 195 or section 197 application on an outward remittance of royalty or technical fees, and in a section 201 proceeding where the payer applied the treaty rate.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 89/2026-CBDT [F. No. 164/1/2026-ITA-1] / SO 3936(E) — Ministry of Finance 17 July 2026
Notification No. 75/2026 [F. No. 275/18/2026-IT(B)] / SO 3610(E) : TDS Exemption on Ship Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 74/2026 [F. No. 275/16/2026-IT(B)] / SO 3609(E) : TDS Exemption on Aircraft Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 65/2025 [F. No. 300196/4/2019-ITA-I] / S.O. 2739(E) — Ministry of Finance 19 June 2025
Notification No. 56 /2025 [F.No.300164/4/2024-ITA-1] / SO 2576(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 12 June 2025
Notification No. 52/2025 [F. No. 300164/5/2024-ITA-1] / SO 2447(E) — Ministry of Finance 30 May 2025

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A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.