Key Takeaways

Section 206AB of the Income Tax Act helps ensure non-filers pay their outstanding dues.
As per Section 206AB, if you have not filed returns for 2 years, then you are liable to pay TDS at double the existing rate or 5%, whichever is higher.
Section 206AB has various objectives, such as identifying non-filers, applying higher TDS, encouraging filing, and easing monitoring.

Section 206AB of the Income Tax Act applies a higher TDS on taxpayers who have not filed their returns or have pending tax dues. Section 206AB ensures compliance and reduces tax evasion.

Suppose Mr. Kapoor has earned ₹1,00,000 as interest income from a fixed deposit. He did not submit his tax returns for the last two years. TDS on interest income is usually 10% with a valid PAN.

But under Section 206AB, the bank must deduct TDS at a higher rate, which is 20% (double of 10%) in this case. So, ₹20,000 will be deducted instead of ₹10,000. This example explains how Section 206AB works to make taxpayers compliant.

In this blog, we will explore the importance, objectives, TDS rate, exemptions, and compliance requirements related to Section 206AB of the Income Tax Act.

Importance Of Section 206AB Of The Income Tax Act

Section 206AB motivates taxpayers to file returns on time and improves the tax system. Its importance can be understood through the following table:

Importance	Detail	Example
Promotes Compliance	To avoid higher TDS, taxpayers are more motivated to file their returns.	Mr. Rajesh earned ₹1,00,000 interest on the FD. He had not filed returns for 2 years, so the bank deducted 20% TDS (₹20,000). After filing, he avoids higher TDS next year.
Reduces Tax Evasion	Stricter TDS applies to non-filers, making sure the government receives the correct amount.	Ms. Priya did not file returns and earned a ₹50,000 dividend. Higher TDS of 20% equals ₹10,000 instead of the standard 10%, which is ₹5,000. The government collects an extra ₹5,000 upfront.
Ensures Fairness	Compliant taxpayers are not disadvantaged, while non-compliant ones face consequences.	Anita filed all returns and earned ₹1,00,000 FD interest. Bank deducted standard 10% TDS = ₹10,000. Compliance ensures she is not penalised.
Improves Tax Collection	Higher TDS helps the government collect more taxes upfront.	Suresh, a non-filer, received ₹2,00,000 from consultancy fees. Higher TDS of 20% equals ₹40,000 instead of the standard 10%, which is ₹20,000. Extra ₹20,000 collected ensures better upfront revenue.

The above-mentioned table shows how non-filers face higher TDS, while compliant taxpayers continue to pay standard rates. Section 206AB provides clarity on compliance, fairness, and enhances tax collection.

Read More - CBDT Extends ITR Filing Deadline to 15 September 2025 for Non-Audit Cases

Objectives Of Section 206AB Of The Income Tax Act

The objectives of Section 206AB are focused on improving compliance and reducing the chances of tax evasion. The main objectives include:

Objective	Detail
Identify Non-Filers	Section 206AB is aimed at individuals who have failed to file income tax returns for the last two years.
Apply Higher TDS	Specific types of transactions have a higher TDS for taxpayers who have not filed returns.
Encourage Filing	By applying higher TDS, taxpayers are encouraged to file returns and report all incomes.
Ease Monitoring	Helps the government track large TDS payments efficiently.

The above-mentioned table reinforces the importance of staying up-to-date with tax filings to avoid unnecessary deductions.

TDS Rate Under Section 206AB Of The Income Tax Act

Section 206AB prescribes an increased TDS for those who remain non-compliant with income tax filings.The deduction rate under Section 206AB is set at double the standard rate or 5%, whichever exceeds the other.

Suppose Srishti received a payment of ₹60,00,000 as a professional fee from the ABC company. The TDS is deductible at 10%. Srishti failed to submit her ITR for the last assessment year.

Now, as per Section 206AB, she is liable to pay double the existing rate or 5%, whichever is higher. The table below outlines her tax dues:

Taxpayer Name	Income Type	Income (₹)	Standard TDS Rate	Higher TDS Rate (206AB)	TDS Deducted (₹)
Srishti	Professional Fee	60,00,000	10%	20%	12,00,000

The above-mentioned table shows that non-compliant taxpayers face higher TDS to encourage the filing of returns.

Exemption Under Section 206AB Of The Income Tax Act

Certain categories are excluded from Section 206AB to avoid unnecessary burden on taxpayers. This table highlights the payments not subject to higher TDS under Section 206AB:

Payment Type	Section
Salary payments	192
Withdrawal of accumulated balance from the employee’s PF	192A
Prize money from lottery	194B
Earnings from horse race winnings	194BB
Income from investment in a securitisation trust	194LBC
Large cash withdrawals from bank	194N

The above-mentioned exclusions ensure that essential income sources and specific activities remain unaffected by additional TDS deductions.

Bonus Tip: Do you know that the Union Budget of 2025 has proposed the removal of Section 206AB to simplify tax compliance and reduce the burden on tax deductors and collectors?

Learn More - Reason Why ITR Refund 2025 Will Reach You in 4-5 Weeks: Must Know for Monthly Savings

Due Date And Compliance Requirements

Section 206AB mandates specific compliance steps for taxpayers and deductors. The following table highlights this:

Action	Details
Due Date for TDS Deposit	Deductors must ensure TDS is deposited by the regular due dates.
Check Filing Status	The payee’s last two years of return filing must be checked by the deductor.
Maintain Records	Deductors should maintain records of TDS and compliance verification.
Correct Deduction	If a payee qualifies under 206AB, higher TDS is required to be deducted at the payment stage.

If you follow the above-mentioned compliance steps, then you can avoid penalties and ensure smooth transactions.

Conclusion

Section 206AB of the Income Tax Act makes sure that taxpayers comply with filing requirements and discourages non-compliance by applying higher TDS on non-filers.

Both individuals and businesses are affected by Section 206AB if they have not filed returns for the last two years and exceed the TDS threshold.

If you file your returns on time and maintain proper records, then you can avoid higher TDS, reduce compliance stress, and contribute to a fair taxation system.

FAQs

1. When was Section 206AB introduced?

It came into effect from 1st July 2021.

2. When was TDS launched?

It was launched in 1922 in India by the Income Tax Act.

3. Who is a specified person as per Section 206AB?

A specified person is one who has skipped filing returns for the last two years and whose TDS in each year is ₹50,000 or more.

4. What is the last date for the TDS claim 2025?

For FY 2024–25, TDS can be claimed while filing the income tax return by the extended due date of September 15, 2025 (for individuals not requiring an audit).

5. What is the age limit for TDS exemption?

Individuals above 60 years can use Form 15H to avoid TDS if their income is below the taxable limit.

6. What is the TDS rate if PAN is inoperative?

When the PAN is inactive, TDS is deducted at a 20% rate.

7. What is Section 206CC of the Income Tax Act?

Section 206CC deals with higher TCS if the buyer does not furnish PAN, ensuring better compliance in tax collection.

Other Related Pages
Section 206AB of the Income Tax Act	Section 194H of the Income Tax Act	Section 270A of the Income Tax Act	Section 194S of the Income Tax Act
Car Loan Tax Benefits	Section 194JB of the Income Tax Act	Section 16 of the Income Tax Act	How to Calculate TDS
How to File an Income Tax Return	How to Pay House Tax Online in India	What is Income Tax	What is Taxation
What is TDS Deduction		What is Double Taxation