Sections 206AB and 206CCA Are Gone: What Deductors Should Change
For four years, every deductor in India had to run an extra check before paying anyone: was this person a return filer? If not, tax came off at a higher rate under Section 206AB, or was collected at a higher rate under Section 206CCA.
That obligation is gone. Both sections were omitted with effect from 1 April 2025. If your accounts payable process still runs a filer status check before every payment, it is doing work that no longer serves any purpose.
What was removed, and why
| Provision | What it did | Status |
| Section 206AB | Higher TDS on payments to specified persons who had not filed returns | Omitted from 1 April 2025 |
| Section 206CCA | Higher TCS from specified persons who had not filed returns | Omitted from 1 April 2025 |
| Section 206C(1H) | TCS on sale of goods above Rs 50 lakh | Removed from 1 April 2025 |
The reason given was practical rather than philosophical. Deductors could not reliably establish, at the moment of payment, whether the payee had filed. The result was capital blocked in over-deduction and a compliance burden falling on the wrong party. The department kept the underlying policy objective and dropped the mechanism.
What this means for a deductor now
- Stop running the filer status check. The compliance check step before each payment is no longer required. Remove it from the payment workflow rather than leaving it as a habit.
- Apply the ordinary rate for the nature of the payment. Filing history is no longer a factor in the rate.
- Update your ERP or accounting rules. Vendor masters that carry a specified-person flag driving a higher rate will over-deduct if the flag is left switched on, and over-deduction is your problem to unwind, not the vendor’s.
- Sellers of goods: stop collecting TCS under 206C(1H). Continuing to collect it means collecting tax you have no authority to collect.
What has not gone away
Two things are frequently confused with the omitted provisions and are still very much in force.
Higher rate where PAN is not furnished
The provision corresponding to the old Section 206AA still applies. Where a payee does not furnish a valid PAN, tax is deducted at the higher rate prescribed. This is about PAN, not about filing history, and it always was.
Higher rate where the PAN is inoperative
A PAN that is not linked to Aadhaar becomes inoperative, and an inoperative PAN attracts deduction at the higher rate exactly as if no PAN had been furnished. This is now the most common cause of an unexpectedly large deduction. See our note on PAN Aadhaar linking and inoperative PAN.
So the practical check before payment has changed shape. You no longer ask “has this vendor filed?” You do still need to ask “is this PAN valid and operative?”
TDS on purchase of goods
The provision formerly at Section 194Q, requiring a buyer with turnover above the prescribed threshold to deduct tax on purchases of goods from a resident seller above the annual threshold, continues to apply.
With Section 206C(1H) removed, the long-running question of which provision takes precedence where both could apply has largely resolved itself: the buyer deducts, and the seller no longer collects. That simplifies a reconciliation that used to consume a great deal of time at both ends.
Note that section numbering changed again on 1 April 2026, when the Income-tax Act, 2025 replaced the 1961 Act. The substance of the purchase-of-goods deduction is carried forward, but any notice or form for tax year 2026-27 onwards will quote the new numbering rather than 194Q.
Thresholds were raised at the same time
The same set of changes lifted several TDS threshold limits with effect from 1 April 2025, including for interest, dividend, professional fees and rent. If your deduction logic still uses the older thresholds, you are deducting on payments that no longer require it — which is not a penalty exposure, but it is an unnecessary refund claim for the payee and an unnecessary entry on your statements.
Check the thresholds you have configured against the current ones. Our current TDS rate chart has the figures.
What to do this quarter
- Review the vendor master for specified-person flags and higher-rate overrides. Switch them off.
- Confirm no TCS is still being collected on sales of goods.
- Re-check the configured thresholds for interest, rent, professional fees and dividend.
- Add a PAN validity and operability check to vendor onboarding, since that is now the live risk rather than filer status.
- Reconcile the deductions already made this year, and correct any that used a rate that no longer exists, before the statement is filed rather than after.
The statements themselves were renumbered under the 2025 Act: 24Q is now Form 138, 26Q is Form 140, 27Q is Form 144 and 27EQ is Form 143. See our note on signing and filing TDS returns.
Let us review your TDS setup
Most of the cost of getting this wrong is not penalty; it is over-deduction that annoys vendors, refund claims that take a year, and reconciliation work at the year end. We review the deduction logic, correct the master data, file the quarterly statements and issue the certificates.
See business tax filing, all-in-one business compliance, and virtual CFO for the wider finance function. Where a payee is over-deducted and should not be, a certificate under Section 395 may be the answer.
Book a call, or sign in at the TAXAJ client portal.
This article states the position following the omission of Sections 206AB and 206CCA with effect from 1 April 2025 and the commencement of the Income-tax Act, 2025 on 1 April 2026. Rates and thresholds change with each Finance Act; confirm the current position before configuring a deduction.
