Section 206AB — Higher TDS for Non-Filers of Income Tax Returns

Section 206AB, introduced by Finance Act 2021 (effective July 1, 2021), requires deductors to apply a higher TDS rate for "specified persons" — those who have not filed income tax returns for the last two years and have TDS/TCS above ₹50,000 in each of those years. This provision creates a compliance incentive for non-filers of ITR. Here is the complete guide.

Who Is a "Specified Person" Under Section 206AB?

A "specified person" means a person who has:

• Not filed ITR for the two immediately preceding financial years (for which the ITR filing due date has expired)
• AND the aggregate of TDS and TCS in each of those two years (deducted or collected) is ₹50,000 or more

Example: For a payment in FY 2025-26, check if the recipient filed ITR for FY 2022-23 and FY 2023-24 (both must have TDS/TCS of ₹50,000+).

TDS Rate for Specified Persons

• Rate = Higher of: (a) double the rate specified in the relevant TDS section, OR (b) double the rate in force, OR (c) 5%
• Example: Section 194A (interest from bank) — normal rate 10%. For a specified person: Higher of (2×10%=20%) or 5% = 20%
• For sections where the rate is below 5%: Minimum TDS is 5%

Sections Excluded from 206AB

• Section 192 (salary) — exempt
• Section 192A (PF withdrawal) — exempt
• Section 194B/194BB (lottery/horse race winnings) — exempt
• Section 194LBC (securitisation trust) — exempt
• Section 194N (cash withdrawal) — exempt (has its own higher TDS for non-filers)
• Non-resident deductions under Section 195 — covered by Section 206AB

How to Check — Compliance Check Facility

• CBDT provides a Compliance Check portal on the TIN-NSDL website for deductors to bulk-verify PAN status
• Upload PAN list → system returns whether each PAN is a "specified person" or not
• Must verify at the beginning of each financial year and periodically
• If the deductor fails to apply higher TDS for a specified person — the deductor becomes a defaulter and pays the differential tax

Conclusion

Section 206AB creates a significant compliance burden for deductors — requiring annual verification of each payee's ITR filing status through the Compliance Check portal. SPOTON provides Section 206AB compliance advisory, vendor status checking and TDS return filing for businesses across Kerala. Contact us for expert TDS compliance services.