Section 206AB of Income Tax Act no longer applies: the Finance Act, 2025 removed it, along with the matching TCS rule in section 206CCA, for payments made from 1 April 2025. A payee who skipped filing a return now faces only the ordinary TDS rate, as long as a valid PAN is given.
What survives is section 206AA, the higher rate when no PAN is given or the PAN is inoperative. That rule continues for FY 2025-26 and has been carried into the Income-tax Act, 2025 for tax year 2026-27. Deductors who still run a non-filer check out of habit can drop it. The TDS basics hub explains the wider system.
Quick facts
Status of 206AB
Omitted from 1 April 2025Old 206AB rate
Twice the normal rate or 5%, whichever higher206CCA (TCS)
Also omitted from 1 April 2025206AA no-PAN rate
20% or the normal rate, whichever higher206AA for 194O and 194Q
5%Inoperative PAN
Treated as no PAN
What section 206ab of income tax act used to do
From 1 July of FY 2021-22, a deductor had to charge a higher rate on a specified person: someone who had not filed a return for the relevant earlier year and whose TDS and TCS for that year added up to ₹50,000 or more. The rate was twice the normal rate, twice the rate in force, or 5%, whichever was highest. Salary, lottery winnings and cash withdrawals were among the payments kept outside it, and so were non-residents with no fixed base in India.
In practice deductors checked every vendor PAN on a compliance utility before each payment. Small vendors who had simply missed a return lost large sums, and refund claims piled up. That burden is why the rule was dropped.
Then and now: rate table
| Situation | FY 2024-25 and earlier | FY 2025-26 and tax year 2026-27 |
|---|---|---|
| Payee filed returns, PAN valid | Normal rate | Normal rate |
| Payee did not file, PAN valid | 206AB: twice the rate or 5% | Normal rate |
| No PAN or inoperative PAN | 206AA: 20% or normal rate | 20% or normal rate |
| No PAN, but both rules applied | Higher of 206AA and 206AB | Only the no-PAN rate |
The same split applies on the collection side: section 206CCA has gone, while the no-PAN rule for TCS remains.
Section 206aa of income tax act: the rule that stays
Section 206AA applies whenever the payee does not give a PAN. The deductor takes the highest of three figures: the rate in the relevant section, the rate in force, or 20%. Two sections carry a softer figure: e-commerce payments under 194O and purchases under 194Q attract 5% instead of 20%.
A PAN that is not linked with Aadhaar becomes inoperative and is treated as missing, so 206AA bites even though a PAN was quoted. Linking it fixes future deductions; see PAN and Aadhaar linking.
Worked example: the same bill before and after
A contractor who missed a return. A factory pays ₹2,00,000 to a fabrication firm for welding work. The firm did not file its earlier return and its TDS for that year was over ₹50,000.
FY 2024-25: normal 194C rate is 2%. Under 206AB, twice that is 4%, so 5% applies as the higher figure: TDS ₹10,000. FY 2025-26: 206AB has gone, so TDS is 2%: ₹4,000.
Same firm, but PAN missing. If the firm gives no PAN in FY 2025-26, 206AA applies: 20% of ₹2,00,000, which is ₹40,000. Quoting a valid PAN brings it back to ₹4,000.
Under the 2025 Act
The Income-tax Act, 2025, in force from 1 April 2026, has no non-filer rate. It keeps a higher rate for payees without a valid PAN, in line with the 20% rule above. Payments in tax year 2026-27 are reported under the section 393 table, so old references to 206AB in vendor contracts or accounting software settings should be removed.
Clean-up mistakes and fixes
| Leftover issue | Fix |
|---|---|
| Accounting software still applies the non-filer rate | Switch the setting off for payments from 1 April 2025 |
| Vendor PAN not linked with Aadhaar | Ask the vendor to link; until then 20% applies |
| Excess TDS deducted in FY 2024-25 under 206AB | The payee claims it in the return for that year; it is not refunded by the deductor |
| Applying 20% to an e-commerce seller without PAN | The 206AA figure for 194O is 5% |
Read this as background on how the rules have moved, not as a view on your accounts. Section numbers and rates can change again, so confirm with the official e-filing help pages or a chartered accountant.
Sources we checked
- Finance Act, 2025
- Income-tax Act, 1961, section 206AB
- Income-tax Act, 1961, section 206AA
- Income-tax Act, 1961, section 206CCA
- Income-tax Act, 2025, section 393
Frequently asked questions
Is section 206ab of income tax act still applicable?
No. It was omitted by the Finance Act, 2025 for payments made from 1 April 2025. Non-filers now face the normal rate if they give a valid PAN.
What was the rate under 206ab of income tax act?
Twice the normal rate, twice the rate in force, or 5%, whichever was highest. It applied only to specified persons who had not filed returns and had TDS and TCS of ₹50,000 or more.
What does 206aa of income tax act say?
If the payee gives no PAN, TDS is the higher of the section rate, the rate in force, or 20%. For 194O and 194Q the figure is 5% instead of 20%.
Does an inoperative PAN attract the higher rate?
Yes. A PAN not linked with Aadhaar is treated as not furnished, so the 206AA rate applies until it becomes operative again.
Was section 206CCA also removed?
Yes. The higher TCS rate for non-filers under section 206CCA was omitted from the same date, 1 April 2025.