Section 206AB of the Income Tax Act

Section 206AB of the Income Tax Act

Section 206AB explained: applicability, rates, interaction with 206AA, and its omission from 1 April 2025

Written by : Knowledge Centre Team

2026-01-09

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6 minutes read

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Section 206AB mandated TDS at rates higher than the standard prescribed rates if you did not file your income tax return. This section was introduced in 2021 and nudged people to file returns. Missing the ITR filing is a major problem with the NRI population that stays out of the country for extended periods.

Thus, the introduction of this new Section was also considered a way to push NRI taxpayers into filing their ITRs. However, with effect from 1 April 2025 (FY 2025–26), Section 206AB has been omitted from the Income-tax Act. Here’s everything you should know about Section 206AB of the Income Tax Act of India.

Key Takeaways

  • Section 206AB mandated higher TDS for certain non-filers meeting specified conditions

  • The higher rate under Section 206AB was the greater of twice the prescribed rate or 5%

  • If PAN was not furnished, Section 206AA could trigger even higher TDS

  • Non-residents without a permanent establishment in India were excluded under Section 206AB

  • Section 206AB has been omitted effective 1 April 2025 (FY 2025-26 onwards)

What is Section 206AB?

Section 206AB prescribed a higher rate of TDS for specific persons. Therefore, for any payments that you were due to receive and required TDS, the rate of TDS would have been higher than the standard prescribed rates if you fell under its ambit. The provision no longer applies from 1 April 2025 onwards.

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When and Whom Did Section 206AB Apply? (Now Discontinued)

Section 206AB used to apply only if all of the following conditions were met before it was omitted from the Income-tax Act from 1 April 2025:

  • You had not filed your income tax return for the two Assessment Years (AY) immediately preceding the financial year in which tax was to be deducted 

  • The due date for filing ITR for those two years had passed 

  • The aggreagatedTDS or TCS in each of those two years was ₹50,000 or more

When Did Section 206AB Not Apply?

While Section 206AB applied to specified non-filers, you could fall outside its scope if the following conditions apply to you:

  • Section 206AB did not apply to NRIs who did not have a permanent establishment in India

  • This section also did not apply to any payments on which the following IT sections apply:

  • Salaries paid under section 192

  • Premature withdrawal from Employees Provident Fund under Section 192A

  • Money from a lottery and a crossword puzzle under Section 194B

  • Money won in a horse race under Section 194BB

  • Money received in cash and in excess of the limit prescribed under Section 194N

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Rate of Tax Under Section 206AB

If Section 206AB applied to you, then the following TDS rates were levied on your income. The higher of the following rates of TDS would have been levied on your income:

TDS at twice the rate specified in the relevant provision of the Act
5%

If you did not file an income tax return for the two relevant Assessment Years (AYs) and did not submit your PAN to the deductors, then different TDS rates could apply. In all such scenarios, the higher of the following applies:

  • TDS under Section 206AA

  • TDS under Section 206AB

Section 206AA applies only when you don’t submit your PAN to the deductors. This is more critical if the transaction is subject to mandatory TDS. The TDS under Section 206AA is the higher of these two:

  • Rate listed in the relevant section of the IT Act; or

  • At the rate of 20%

How to Calculate TDS Under 206AB?

Calculating your TDS amount under the then-applicable provisions of Section 206AB was easy and helped plan your cash flows while pending ITRs were regularised. To understand this better, let us explore Section 206AB of income tax act with examples.

(Note: Section 206AB has been omitted with effect from 1 April 2025 and is no longer applicable from FY 2025–26 onwards)

Example 1: When Section 206AB Applies:

Ramesh pays ₹5 lakhs towards professional consulting to Suresh on 1st July 2021. This payment comes under the ambit of Section 194J of the Indian Income Tax Act.

Suresh did not file his income tax return for the two relevant Assessment Year, preceding FY 2021–22, and met the specified person conditions under Section 206AB. The rate of TDS applicable under Section 194J is 10%.

The applicable TDS rate would be the higher of the following:

  • Twice the rate specified in Section 194J. The rate works out to 20% (10% * 2)

  • 5% TDS rate

As 20% is higher, the applicable rate of TDS would be 20%. The deducted amount would be ₹1 lakh (₹5 lakhs * 20%)

Example 2: When Sections 206AA and 206AB are applied together:

Sita pays ₹5 lakhs towards fees, as applicable under the contract, to Gita on 1st July 2021. This payment comes under the ambit of Section 194C of the Indian Income Tax Act.

Gita did not file her income tax return for the past 2 financial years, meeting the specified person criteria, and she did not submit her PAN. Therefore, both Sections 206AA and 206AB apply in conjunction. The applicable TDS rate is 1%.

Under Section 206AA, the applicable rate of tax is the  higher of:

  • 1% as per 194C; or

  • 20%

Under Section 206AB, the applicable rate of tax is the higher of:

  • Double the rate mentioned in 194C, i.e., 2% (1% * 2)

  • 5%

The final applicable rate of TDS would be higher than the rates under Sections 206AA and 206AB:

  • 20%

  • 5%

Therefore, Gita’s income would be taxed at the rate of 20%. The deducted amount would be ₹1 lakh (₹5 lakhs * 20%)

File Your ITRs on Time

Filing your ITR ensures that you are clear of your tax liabilities. Whether you owe the government more than the TDS or less, only ITR can make it a certainty and avoid penalties. Earlier, higher TDS rates could apply if a taxpayer failed to file returns under Section 206AB. However, this provision has been omitted with effect from 1 April 2025.  Differential tax rates may still apply if you have not r furnished your PAN to the deductor, as governed by Section 206AA. Besides, it is always a healthy practice to file income tax returns and be a law-abiding citizen.

Glossary

  1. Section 206AA: Provision mandating higher TDS when PAN is not furnished to the deductor
  2. Permanent Establishment: A fixed place of business through which a non-resident carries out operations in India
  3. Assessment Year: The year following a financial year in which income is assessed and taxed
  4. Income Tax Return: A form filed to report income, tax paid, and claim refunds or settle tax dues
  5. Deductor: The person responsible for deducting TDS before making a payment
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FAQs

Under Income Tax Section 206AB, a specified person is referred to as a taxpayer who:

  • Had not filed income tax returns for the two relevant assessment years preceding the financial year in which tax was to be deducted

  • The due date for filing those returns had expired

  • The aggregate of TDS and TCS in each of those two years was ₹50,000 or more

However, a non-resident without a permanent establishment in India was excluded from this definition.

Under 206 Section TDS, if a specified person failed to file income tax returns for the prescribed years, tax was deducted at a higher rate. The TDS was required to be the higher of:

  • Twice the rate specified in the relevant TDS provision; or

  • 5%

If PAN was also not furnished, Section 206AA could apply, and the higher rate between Sections 206AA and 206AB would be deducted.

However, Section 206AB has been omitted with effect from 1 April 2025, and this higher-rate mechanism no longer applies from FY 2025-26 onwards.

Yes. When it was in force, Section 206AB applied to any “specified person”, whether an individual, partnership firm, company, LLP, trust, or any other taxpayer category. The provision was not restricted to individuals alone.

If the entity met the prescribed conditions, failed to file returns for the two relevant Assessment Years, and exceeded the ₹50,000 aggregate TDS/TCS threshold, higher TDS could apply, regardless of whether the recipient was an individual or a business.

Under the original provisions of Section 206AB, higher TDS applied to any payment liable to TDS, irrespective of the section under which it was deducted (such as Sections 194C or 194J).

So, if a specified person received payments covered under multiple TDS sections, the higher rate under Section 206AB applied to each such payment, provided the non-filer and threshold conditions were met.

Yes. Section 206AB was triggered by the failure to file income tax returns. If a taxpayer failed to file returns for the prescribed years and met the threshold conditions, higher TDS applied. However, Section 206AB has been omitted with effect from 1 April 2025 and no longer applies from FY 2025-26 onwards.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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