Finance Bill 2025 proposes removing Sections 206AB and 206CCA of the Income-tax Act, which currently mandate higher tax deduction (TDS) and tax collection (TCS) rates for non-filers of income tax returns. These provisions require deductors and collectors to verify the tax filing status of deductees and collectees, leading to increased compliance burdens and capital blockage. Various stakeholders raised concerns about the difficulty of verifying taxpayer compliance at the time of deduction or collection. In response, the government has decided to omit these sections, simplifying tax compliance and reducing administrative challenges. The amendments will take effect from April 1, 2025. Additionally, Clause 65 of the Bill amends Section 194S by removing references to Section 206AB, ensuring a smoother process for transactions involving virtual digital assets. Clauses 66 and 68 officially remove Sections 206AB and 206CCA, eliminating higher TDS/TCS rates for non-filers.
Budget 2025: Removal of higher TDS/TCS for non-filers of return of income
Section 206AB of the Act, requires deduction of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA of the Act, requires for collection of tax at higher rate when the collectee specified therein is a non-filer of income-tax return. This is subject to other conditions specified in the two sections.
2. Representations were received from various stakeholders that it is difficult for the deductor/collector, at the time of deduction/collection, to verify whether returns have been filed by the deductee/collectee, resulting in application of higher rates of deduction/collection, blocking of capital and increased compliance burden.
3. Accordingly, to address this issue and reduce compliance burden for the deductor/collector, it is proposed to omit section 206AB of the Act and section 206CCA of the Act.
4. These amendments will take effect from the 1st day of April, 2025.
[Clauses 65, 66 & 68]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 65 of the Bill seeks to amend section 194S of the Act relating to payment on transfer of virtual digital asset.
Sub-section (1) of the said section provides that any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to 1% of such sum as income-tax thereon.
Sub-section (2) of said section provides that the provisions of sections 203A and 206AB shall not apply to a specified person.
It is proposed to amend the said sub-section so as to omit the reference of section 206AB. This amendment will take effect from 1st April, 2025.
Clause 66 of the Bill seeks to omit section 206AB of the Income-tax Act relating to special provision for deduction of tax at source for non-filers of income-tax return.
This amendment will take effect from 1st April, 2025.
Clause 68 of the Bill seeks to omit section 206CCA of the Income-tax Act relating to special provision for collection of tax at source for non-filers of income-tax return.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
65. Amendment of section 194S.
In section 194S of the Income-tax Act, in sub-section (2), for the words, figures and letters “sections 203A and 206AB”, the word, figures and letter “section 203A” shall be substituted.
66. Omission of section 206AB.
Section 206AB of the Income-tax Act shall be omitted. Omission of section 206AB.
68. Omission of section 206CCA.
Section 206CCA of the Income-tax Act shall be omitted.
