Section 206AB & 206CCA of Income Tax Act:

Higher TDS/TCS for Non-filers Explained

To encourage tax compliance and penalize habitual non-filers of income tax returns, the Indian government introduced Sections 206AB and 206CCA under the Income Tax Act, 1961. These sections impose higher TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) rates on individuals and businesses who have not filed their ITRs, despite having significant financial transactions.

In this blog, we’ll simplify the concept of 206AB and 206CCA, who they apply to, how the higher rate is calculated, and what deductors or collectors need to do to comply with these rules in FY 2025–26 (AY 2026–27).

📜 What is Section 206AB?

Section 206AB is applicable for TDS deduction and mandates a higher rate of TDS if the payee (i.e., the person receiving the payment) has:

• Not filed income tax returns for the two previous financial years, and

• Aggregate TDS and TCS is ₹50,000 or more in each of those years

In such cases, the deductor must deduct TDS at a higher of the following rates:

1. Twice the rate specified in the relevant provision of the Act

2. Twice the rate or rates in force

3. 5% flat rate

📜 What is Section 206CCA?

Section 206CCA is the TCS counterpart of 206AB. It imposes higher TCS rates on buyers or customers who meet the same non-filing and high transaction conditions.

Under 206CCA, the tax collector must collect TCS at the higher of:

1. Twice the specified TCS rate

2. 5% flat rate

📌 Who is a "Specified Person"?

Both 206AB and 206CCA apply to “specified persons” defined as:

• Individuals or entities who have not filed their ITR for the two preceding assessment years

• And whose TDS/TCS is ₹50,000 or more in each of those years

Exceptions:

• Non-residents without a permanent establishment in India are excluded

• New taxpayers not required to file ITRs for earlier years are also excluded

📅 Effective From

Both sections came into effect from 1st July 2021 and continue to be applicable in FY 2025–26 for eligible cases.

🧮 Example of Higher TDS under Section 206AB

Let’s say a company is paying ₹1,00,000 as professional fees to a consultant. Normally, TDS under Section 194J is 10%. But if the consultant has not filed ITRs for the last two years and TDS exceeds ₹50,000, then:

• Rate as per 194J = 10%

• Twice of 10% = 20%

• 5% = 5%

✅ TDS to be deducted at higher of the above, i.e., 20%

🔍 How to Check Non-filers?

The Income Tax Department has introduced a facility for deductors/collectors to verify whether a PAN belongs to a “specified person” under 206AB/206CCA through the Compliance Check for Sections 206AB & 206CCA available on the Reporting Portal.

This check is essential before making any payment or collecting TCS.

⚠️ Penalties for Non-compliance

If TDS or TCS is not deducted/collected at the higher rate where applicable:

• The deductor or collector is liable to pay the shortfall from their own pocket

• May attract interest and penalties under Sections 201 and 271C

Frequently Asked Questions