Key Takeaways
- Sections 206AB and 206CCA have been omitted with effect from 1 October 2024 by the Finance (No. 2) Act, 2024. The "higher TDS/TCS for non-filers" rule no longer applies to payments made on or after that date.
- While in force (1 July 2021 to 30 September 2024), they required deductors and collectors to apply a higher rate on "specified persons", broadly, those who had not filed ITR for the preceding year and had TDS/TCS of Rs 50,000 or more in that year.
- The higher rate was twice the prescribed rate or 5%, whichever is higher (for TCS, twice the rate or 5%).
- The provisions were removed to reduce the compliance burden of checking every payee's filing status.
- Section 206AA still applies: if a payee does not furnish a valid PAN, TDS is deducted at the higher of the prescribed rate or 20%. That rule is unchanged.
- For current payments, deduct at the normal prescribed rate based on the payment type and a valid PAN.
Are Sections 206AB and 206CCA still applicable in India? No. Sections 206AB and 206CCA were omitted with effect from 1 October 2024 by the Finance (No. 2) Act, 2024. For any payment made on or after that date, there is no higher TDS or TCS based on the payee's ITR-filing history. Deduct or collect at the normal prescribed rate for the transaction, subject to the unchanged Section 206AA rule, which still imposes a 20% minimum where the payee has no valid PAN.
If you have been checking a vendor's "specified person" status before every payment, the good news is that you can stop. Sections 206AB and 206CCA, the provisions that made businesses charge higher TDS and TCS on non-filers, were removed from 1 October 2024. They still matter for understanding past deductions and for anyone reconciling older transactions, so this guide explains what they did, how they worked, why they were withdrawn, and exactly what applies in their place today.
The headline: removed from 1 October 2024
The single most important fact in 2026 is that Sections 206AB and 206CCA no longer exist in the statute. The Finance (No. 2) Act, 2024 omitted both sections with effect from 1 October 2024. The government's stated reason was to ease compliance: deductors and collectors had been burdened with verifying the filing status of every payee, which was disproportionate to the revenue it protected.
So the rule is simple for current practice:
- Payments on or after 1 October 2024: No higher rate for non-filers. Use the normal prescribed rate.
- Payments before 1 October 2024: The provisions applied, and any deductions already made under them stand.
If you are filing or revising TDS returns for periods up to 30 September 2024, the 206AB/206CCA higher rates may still be relevant for those transactions. From the October 2024 quarter onward, they do not apply at all.
What the sections did while in force
Both sections were introduced by the Finance Act, 2021, effective 1 July 2021, with a common policy goal: push chronic non-filers to start filing their income tax returns by making it more expensive to receive payments without filing.
- Section 206AB applied to TDS, the tax a payer deducts from a payment.
- Section 206CCA applied to TCS, the tax a seller collects from a buyer.
They worked by identifying a category called the "specified person" and charging that person a higher rate.
Comparison
Section 206AB vs Section 206CCA (while in force)
Mirror provisions: one for deduction, one for collection
| Parameter | Section 206AB (TDS) | Section 206CCA (TCS) |
|---|---|---|
| Applied to | Tax deducted at source | Tax collected at source |
| Trigger | Payee is a 'specified person' | Collectee is a 'specified person' |
| Higher rate | 2x prescribed rate or 5%, whichever higher | 2x prescribed rate or 5%, whichever higher |
| Salary (Section 192) covered | Excluded | Not applicable |
| Non-residents without PE | Excluded | Excluded |
| Status in 2026 | Omitted from 01.10.2024 | Omitted from 01.10.2024 |
Takeaway: Both are now history. Understanding them only matters for transactions up to 30 September 2024 and for context on the current normal-rate regime.
Source: Sections 206AB and 206CCA, Income Tax Act 1961 (omitted by Finance (No. 2) Act 2024)
Who was a "specified person"
A payee or collectee was a specified person if, broadly, both of these were true:
- They had not filed their income tax return for the previous year immediately before the year of the payment, for which the filing due date had expired, and
- Their aggregate TDS and TCS in that previous year was Rs 50,000 or more.
Certain persons were never specified persons, even if they met the test:
- Non-residents who did not have a permanent establishment in India,
- Persons not required to file an ITR for the relevant year and notified by the government.
The definition was narrowed over time (originally a two-year non-filing test, later simplified to one year), but the Rs 50,000 threshold and the non-filing requirement were the constant core.
What rate applied
Where a person was a specified person, the deductor or collector had to apply the higher of:
- Twice the rate specified in the relevant provision, or
- Twice the rate or rates in force, or
- 5% (for TCS under 206CCA, twice the rate or 5%).
So for a payment otherwise liable to 1% TDS, the specified-person rate was the higher of 2% or 5%, that is, 5%.
Interaction with Section 206AA (no PAN): Section 206AA imposes a minimum 20% where the payee has no PAN. If both 206AA and 206AB applied to the same payee, the deductor had to apply the higher of the two, which in practice usually meant 20%.
Illustration (pre-1 October 2024). A vendor payment of Rs 1,00,000 under Section 194C (contractor) normally attracts 1% TDS = Rs 1,000. If the vendor was a specified person under 206AB, the rate became the higher of 2% or 5%, that is 5%, so TDS = Rs 5,000. From 1 October 2024, the same payment attracts only the normal 1%.
Salaried employees and non-residents were excluded
Two exclusions caused the most questions and are worth restating, because they remained true throughout the life of the provisions:
- Salary under Section 192 was excluded. Higher TDS for non-filers never applied to salary. An employer deducted TDS on salary under the normal Section 192 computation regardless of the employee's filing history.
- Non-residents without a permanent establishment were excluded. Payments to such non-residents continued under Section 195 and the applicable treaty rate, not the 206AB higher rate.
How deductors verified status (the Compliance Check tool)
While the provisions were in force, the income tax department ran a Compliance Check for Sections 206AB & 206CCA utility on the reporting portal. Deductors could:
- Enter a single PAN to see whether the payee was a specified person, or
- Bulk upload a CSV of PANs (useful for businesses with many vendors) and download the status for all of them.
This tool is the practical mechanism that has now become unnecessary for post-October-2024 payments.
What applies now, after the omission
With 206AB and 206CCA gone, the live rules for deciding your TDS/TCS rate are:
Step-by-Step Guide
Deciding the TDS Rate on a Payment Today
The non-filer check is gone; these are the steps that remain
Identify the correct section
Match the payment to its TDS section (for example 194C for contractors, 194J for professional fees, 194Q for purchase of goods) and read the prescribed rate.
Step 1Collect and validate the PAN
Obtain a valid PAN from the payee. This is the key residual check, because Section 206AA still imposes 20% TDS where PAN is missing or invalid.
Step 2Apply the prescribed rate
Deduct at the normal rate for the section. There is no longer any uplift for non-filers under 206AB or 206CCA.
Step 3Deposit and file on time
Pay the TDS by the due date and file the quarterly return. Late deposit triggers interest under Section 201(1A).
Step 4Source: TDS provisions in force after omission of 206AB/206CCA (w.e.f. 01.10.2024)
For a full view of current rates by payment type, see our TDS rate chart for FY 2026-27 and the guide on which TDS section applies to your payment.
Looking for expert help with TDS compliance and return filing? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Why this still matters in 2026
Even though the provisions are gone, the topic remains live for three reasons:
- Reconciliation of older periods. Anyone revising TDS returns or responding to notices for periods up to 30 September 2024 must still apply the 206AB/206CCA logic to those transactions.
- Searches and confusion. The sections were heavily publicised, and accounting software, vendor onboarding forms, and internal SOPs still reference them. Teams need to know they can be retired from current processes.
- Penalty exposure on past defaults. A deductor who failed to apply the higher rate during the in-force period remains exposed to being treated as an assessee in default with interest under Section 201(1A) for those past payments, plus the risk of expenditure disallowance.
Don't confuse 206AB with 206AA
These two look similar but are different, and only one survives:
- Section 206AA (still in force): Higher TDS, minimum 20%, when the payee does not furnish a valid PAN. This is about PAN, not about filing returns, and it is unchanged.
- Sections 206AB / 206CCA (omitted from 1 October 2024): Higher TDS/TCS based on the payee's non-filing of returns. These no longer apply.
The practical takeaway: keep collecting and validating PANs (206AA still bites), but stop running the non-filer "specified person" check for current payments.
Frequently Asked Questions
Are Sections 206AB and 206CCA still in force in 2026?
No. Both sections were omitted with effect from 1 October 2024 by the Finance (No. 2) Act, 2024. For payments made on or after that date, there is no higher TDS or TCS based on whether the payee has filed income tax returns.
What did Section 206AB do while it was in force?
From 1 July 2021 to 30 September 2024, Section 206AB required a deductor to apply a higher TDS rate, the higher of twice the prescribed rate or 5%, on payments to a 'specified person', broadly a person who had not filed their ITR for the relevant preceding year and whose aggregate TDS/TCS in that year was Rs 50,000 or more. Section 206CCA did the same for TCS.
Do I still need to check a vendor's filing status before paying?
No, not for the higher-rate rule. Since the non-filer check under 206AB/206CCA was removed from 1 October 2024, you do not apply a higher rate based on filing history. You should still collect a valid PAN, because Section 206AA imposes 20% TDS where PAN is missing.
Were salaried employees ever subject to 206AB?
No. Salary under Section 192 was always excluded from Section 206AB. An employer deducts TDS on salary under the normal Section 192 computation, regardless of the employee's filing history.
Is Section 206AA also removed?
No. Section 206AA is unchanged and still in force. It requires TDS at the higher of the prescribed rate or 20% where the payee does not furnish a valid PAN. It is separate from the now-omitted 206AB/206CCA non-filer rule.
What rate do I apply to a contractor payment now?
The normal prescribed rate for the section, for example 1% or 2% under Section 194C depending on the payee, provided a valid PAN is furnished. There is no longer any uplift for non-filers. If PAN is not furnished, Section 206AA applies a 20% minimum.
The story of Sections 206AB and 206CCA is short: introduced in 2021 to nudge non-filers, found to be more compliance burden than it was worth, and removed from 1 October 2024. For any payment you make today, the non-filer check is behind you. Focus on the rules that still bite, the correct section rate, a valid PAN (Section 206AA), and timely deposit and return filing, and your TDS process is both simpler and fully compliant.
This guide is based on Sections 206AB and 206CCA of the Income Tax Act, 1961 (introduced by the Finance Act 2021 and omitted by the Finance (No. 2) Act 2024, effective 1 October 2024), Section 206AA, Section 192, Section 195, and Section 201(1A). It is general information for educational purposes and not a substitute for professional advice. Verify the current law against the latest bare Act and consult a qualified professional for transactions spanning the changeover date.