Section 206AB of the Income Tax Act: Higher TDS for Non-Filers Explained

You’ve been paying TDS regularly, but did you know you could be liable for a higher TDS rate if you haven’t filed your ITR?

That’s where Section 206AB of the Income Tax Act, 1961 comes in — a provision introduced to penalise habitual non-filers and tighten compliance.

Let’s break this down in simple words.

📘 What is Section 206AB of the Income Tax Act?

Introduced via the Finance Act, 2021, Section 206AB is a Special provision for the deduction of tax at source for non-filers of income tax return.

In short, this section:

mandates higher TDS rates for specified individuals who have not filed their income tax returns for the last two years and have substantial TDS/TCS deductions.

🔍 Whom Does It Apply To?

This section applies to a person who:

• Has not filed income tax returns for the previous two assessment years, and
• Total TDS and TCS exceed ₹50,000 in each of those years

These taxpayers are called Specified Persons under Section 206AB.

💡 Such non-filers will face a higher TDS than the regular applicable rates.

📌 Key Provisions of Section 206AB

• Deduct TDS at higher rates than usual
• Applicable when payment is being made to a “specified person”
• The highest of the following three rates shall be applied:
  1. Twice the rate specified under the Act
  2. Twice the rate in force
  3. 5%

💡 Keyword use: Section 206AB mandates TDS at rates higher than the standard prescribed rates

🧾 Example to Understand Better

Let’s say you’re making a contractor payment of ₹5 lakhs to Mr. X.

Normally, TDS would apply at @1%.
But if Mr. X hasn't filed ITRs for the last 2 years, and his TDS/TCS was over ₹50,000 in each year:

→ Section 206AB will apply.
→ You’ll now deduct TDS at 5%, not 1%.

That’s a big jump — and that’s the point. It forces non-filers to comply and file their ITRs. "

🧠 What About Section 206CCA?

There’s a sister provision – Section 206CCA, which applies to TCS (Tax Collected at Source).

Both work together to enforce compliance among non-filers.

📌 Keywords: section 206ab & 206cca | compliance check for section 206ab & 206cca

🔍 How to Identify Non-Filers?

To simplify the process, the Income Tax Department provides a Compliance Check Tool:

1. Visit the Income Tax Portal
2. Use PAN to check the status
3. Download reports for compliance verification

👉 This helps deductors determine whether Section 206AB applies or not. "

🧾 Declaration Format

In case deductees want to declare their compliance, there’s a standard declaration format that can be used.

📌 Keyword: Section 206AB of Income Tax Act declaration format

This declaration must include:

• PAN
• Confirmation of ITR filing
• Assessment years covered
• TDS/TCS amounts

📁 Documents and Records

Before deducting TDS at higher rates, maintain:

• Compliance check evidence
• ITR filing acknowledgements of deductees
• Communication trail (if declaration was requested)

⚠️ Exemptions

Section 206AB does not apply to:

• Non-residents without a permanent establishment in India
• TDS on salary (Section 192), lottery (194B), horse racing (194BB), cash withdrawals (194N), etc.

🧾 Summary Table

📌 Conclusion

Section 206AB is a compliance-enforcement tool, not just a tax provision. It rewards disciplined taxpayers and penalises habitual defaulters.

If you’re a business or a deductor, ensure you check compliance before making payments. And if you’re a deductee, remember — those who fail to file their returns on time will have a higher rate of TDS deducted.

👉 Need a declaration format or help with compliance checks? Visit CallMyCA.com or reach out to our TDS experts.