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Section 206AB 206CCA TDS India requirements place a compliance burden on the deductor, not the vendor. If a vendor is a specified person and the deductor applies the standard section rate rather than the higher 206AB rate, the deductor is liable for the shortfall under Section 201 — regardless of whether they were aware of the vendor’s ITR filing status. The identification and documentation step is what determines whether the deductor has a defence.
What Section 206AB Covers
Section 206AB (effective 1 July 2021) applies to any payment where TDS would otherwise be deducted under Sections 192A, 194, 194A, 194B, 194BA, 194BB, 194C, 194D, 194DA, 194EE, 194F, 194G, 194H, 194I, 194IA, 194IB, 194IC, 194J, 194K, 194LA, 194LBB, 194LBC, 194M, 194N, 194-O, 194Q, 194R, 194S, and 195.
A vendor is a specified person if they have not filed returns for two consecutive preceding financial years in which the return due date under Section 139(1) has passed, and their TDS/TCS aggregate in each of those years was ₹50,000 or more. Both conditions must be met.
Section 206CCA mirrors this logic for TCS collections — buyers who are specified persons trigger higher TCS rates on the seller’s side.
Where Reconciliation Breaks Down
Annual Rate Master Updates
Organisations that update their TDS rate master once a year — typically at the start of each financial year — miss vendors whose specified person status changes mid-year. A vendor who filed their overdue returns in August of FY 2025-26 is no longer a specified person from that point forward, but a rate master updated only in April will continue applying the 206AB rate. Conversely, a vendor who was compliant at the start of the year may have missed filing for a prior year that comes into scope mid-year. Annual updates create both over-deduction and under-deduction errors.
Threshold Monitoring Gap
The ₹50,000 TDS/TCS threshold applies in each of the two preceding years — not cumulatively. Finance teams that calculate aggregate TDS across both years (rather than verifying it separately for each year) may incorrectly classify a vendor as a specified person when the threshold was breached in only one of the two years, or miss a classification where it was breached in both.
No Documented TRACES Output
The TRACES Compliance Check result is the evidence that the deductor exercised due diligence before applying or not applying the 206AB rate. Teams that run the check but do not retain the output — or who record only the result without the date and the PAN list checked — have no audit trail if the deductor’s status determination is challenged.
Section 206AB — Rate Comparison
| Vendor Type | Normal Rate | 206AB Rate Applied | Threshold to Check | TRACES Verification |
|---|---|---|---|---|
| Professional fee vendor (194J) | 10% | 20% (twice 10%, above 5%) | ₹30,000 per payment | Run Compliance Check before payment |
| Contractor, company (194C) | 2% | 5% (twice 2% = 4%, below 5% floor) | ₹30,000 per payment or ₹1 lakh aggregate | Run Compliance Check before payment |
| Rent payee (194I) | 10% (plant/machinery: 2%) | 20% (land/building); 5% (plant/machinery, floor applies) | ₹2.4 lakh per annum | Run Compliance Check annually minimum |
| Interest payee (194A) | 10% | 20% (twice 10%) | ₹40,000 for banks; ₹5,000 others | Run Compliance Check per payment cycle |
| Commission agent (194H) | 5% | 10% (twice 5%, above 5%) | ₹15,000 per annum | Run Compliance Check before first payment of FY |
Reconciliation Process: Per-Payment-Cycle Verification
The TRACES “Compliance Check for Section 206AB/206CCA” tool (under Statements/Payments on TRACES) accepts a PAN list and returns a flag for each PAN that is a specified person. The reconciliation workflow should operate on this cycle:
Before each payment run where TDS applies, extract the PAN list for vendors being paid. Upload to TRACES Compliance Check. Retrieve the output, which confirms each PAN as compliant or specified. Flag specified persons in the payment system and apply the higher rate. Retain the TRACES output as a dated audit record — the check date, the PAN list, and the result. After each financial year ends and returns are filed, recheck the vendor list to update status for the new year.
TDS reconciliation software India that integrates TRACES Compliance Check results into the payment workflow can automate the flag-and-rate step, reducing the risk of a payment being authorised at the standard rate for a vendor whose specified person status was confirmed in the last check run.
Reconciliation software India platforms that maintain vendor-level TDS rate history also make it possible to audit which rate was applied to each payment and on what TRACES evidence — a requirement if a Section 201 demand is raised for a prior period.
The Income Tax Department of India publishes the TRACES user guide and Section 206AB guidance, including the list of sections to which it applies and the conditions for exclusion.
Critical Update: Sections 206AB and 206CCA Abolished
Sections 206AB and 206CCA have been abolished effective April 1, 2025 and are not carried into the Income Tax Act 2025 at all. The higher TDS/TCS rate mechanism for non-filers of income tax returns — introduced in 2021 — no longer exists.
What this means for enterprises
- Remove the specified person verification workflow — the TRACES compliance check utility for non-filer status is no longer required for transactions from April 1, 2025 onwards
- Stop applying higher rates — the 206AB escalation (twice the prescribed rate or 5%, whichever is higher) no longer applies
- Section 206AA continues — higher TDS for payees who don’t furnish PAN survives as Section 397(2) under the new Act (20% or the prescribed rate, whichever is higher)
- No replacement provision — unlike most old sections that were renumbered, 206AB/206CCA are simply gone. The government chose not to continue the non-filer penalty mechanism
Reconciliation impact and system decommissioning
For enterprises that built automated 206AB/206CCA checks into their vendor payment workflows, this abolition requires a structured decommissioning of three specific components:
- Specified person verification workflow — the pre-payment check that flagged vendors as specified persons based on ITR filing history is no longer required. Remove this gate from payment authorization workflows for transactions dated April 1, 2025 onwards.
- TRACES Compliance Check API integration — the bulk PAN upload to TRACES for non-filer status verification can be decommissioned. The API endpoint for Section 206AB/206CCA compliance check is no longer relevant for current-year transactions.
- Rate escalation logic — the conditional logic that applied the higher of twice the prescribed rate or 5% for specified persons should be removed from TDS computation engines. Revert to standard section rates for all vendors regardless of ITR filing history.
CBDT Circular 9/2025 provides transitional relief for inoperative PANs during the changeover period. Enterprises should review this circular for guidance on TDS treatment where PAN validation issues overlap with the 206AB decommissioning window.
The PAN validation requirement under Section 397(2) (formerly 206AA) continues unchanged — the higher rate for payees who do not furnish a valid PAN (20% or the prescribed rate, whichever is higher) survives in the new Act. Ensure the 206AA validation logic is preserved when removing the 206AB checks, as both were often implemented in the same code path.
For transactions before April 1, 2025 where higher rates were applied, correction statements follow the standard 2-year limit under Section 397(3)(f) of the new Act. Retain TRACES Compliance Check outputs for pre-April 2025 transactions as audit evidence — the abolition does not retroactively eliminate the obligation to have verified specified person status for historical payments.