Section 206AB — Higher TDS for Specified Non-Filers
Section 206AB of the Income Tax Act, 1961 mandates that TDS be deducted at a higher rate for a specified person who has not filed income tax returns for the two preceding years in which TDS/TCS was deductible, and whose aggregate TDS/TCS in each of those years exceeded Rs. 50,000.
Introduced by the Finance Act 2021 effective 1 July 2021, Section 206AB is a penal TDS provision designed to nudge non-filers of income tax returns into compliance. The provision applies alongside existing TDS sections: wherever TDS is otherwise deductible (except under sections 192, 192A, 194B, 194BB, 194LBC, and 194N), the deductor must verify whether the payee qualifies as a specified person and, if so, apply the higher rate.
A specified person under Section 206AB is someone who has not filed returns of income for both of the two immediately preceding financial years for which the due date under Section 139(1) has expired, and whose aggregate TDS or TCS in each of those two years was Rs. 50,000 or more. Both conditions must be satisfied simultaneously — a person who filed in one of the two years or whose TDS was below Rs. 50,000 in each year does not qualify.
The rate of TDS under Section 206AB is the higher of: (a) twice the rate specified in the relevant TDS section, or (b) twice the rate in force under the Finance Act, or (c) 5%. This means for a payment where normal TDS would be 10%, the Section 206AB rate would be 20%. When Section 206AB is combined with Section 206AA (non-furnishing of PAN), the higher of the two rates applies.
To ease the compliance burden on deductors — particularly large organisations dealing with thousands of vendors — the Income Tax Department launched the Compliance Check for Section 206AB/206CCA functionality on the Income Tax Reporting Portal. Deductors can upload a list of PANs in bulk and receive confirmation of whether each PAN qualifies as a specified person, eliminating the need for manual verification.
Section 206AB has had a significant impact on corporate TDS compliance workflows. Accounts payable teams must now periodically check vendor PAN compliance status, especially before large payments or year-end settlements. The provision also has implications for contractual negotiations, as vendors who are non-filers may seek to gross up their invoices to account for the higher TDS outgo, creating friction in commercial relationships.