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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.


๐Ÿ“˜ 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.


๐Ÿ” 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 โ‚น50,000 in each of those years

These taxpayers are called Specified Persons under Section 206AB.

๐Ÿ’ก Such non-filers will face a higher TDS than the regular applicable rates.


๐Ÿ“Œ 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%

๐Ÿ’ก Keyword use: Section 206AB mandates TDS at rates higher than the standard prescribed rates


๐Ÿงพ Example to Understand Better

Let’s say you’re making a contractor payment of โ‚น5 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 โ‚น50,000 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. "


๐Ÿง  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.

๐Ÿ“Œ Keywords: section 206ab & 206cca | compliance check for section 206ab & 206cca


๐Ÿ” 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

๐Ÿ‘‰ This helps deductors determine whether Section 206AB applies or not. "


๐Ÿงพ Declaration Format

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

๐Ÿ“Œ Keyword: Section 206AB of Income Tax Act declaration format

This declaration must include:

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

๐Ÿ“ Documents and Records

Before deducting TDS at higher rates, maintain:

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

โš ๏ธ 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.

๐Ÿงพ Summary Table

Particulars

Normal Case

If Section 206AB Applies

TDS on Contractor Payment

1%

5%

TDS on Professional Fees

10%

20%

TDS on Commission

5%

10% or higher


๐Ÿ“Œ 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.

๐Ÿ‘‰ Need a declaration format or help with compliance checks? Visit CallMyCA.com or reach out to our TDS experts.