How to Avoid TDS on FD Interest: Form 15G, 15H v/s. New Form 121

If your bank is deducting TDS on fixed deposit (FD) interest even when your total income is below the taxable limit, you could be losing money unnecessarily. Many taxpayers in India are unaware that they can legally avoid TDS on interest income by submitting a self-declaration form—commonly known as Form 15G or Form 15H under the current tax laws. With evolving tax rules and discussions around simplified compliance mechanisms like Form 121 under the new Income-tax framework, it is important to clearly understand who is eligible to stop TDS, how the rules differ for senior citizens and non-senior citizens, and what to do if TDS has already been deducted. In this complete guide, we break down TDS on bank interest, eligibility conditions, tax-saving strategies, and practical examples to help you avoid unnecessary deductions and maximize your savings legally. 

⚡ Quick Reference — At a Glance

1. What is TDS on Bank Interest and Why Does It Matter?

Every time a bank pays you interest on a Fixed Deposit (FD), Recurring Deposit (RD) they are legally required to check whether TDS (Tax Deducted at Source) needs to be deducted. This is governed by Section 393 of the Income-tax Act, 2025.

The key question the bank asks itself is: “Does this customer’s total interest with us cross the annual threshold?” If yes, TDS is deducted automatically — whether or not you actually owe any tax!

TDS Thresholds on Interest Income [Section 393, Sl. No. 5]

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📌 Important: These thresholds are per year, per bank (per PAN). If the bank has adopted Core Banking Solutions (CBS), the threshold is aggregate across all branches. If NOT on CBS, it applies branch-wise.

2. New Tax Regime Slabs — Your Tax Liability at a Glance

W.e.f. April 1, 2026, the new Income-tax Act, 2025 governs taxation. The new regime under Section 202 is now the DEFAULT regime for individuals and HUFs. Here are the slab rates:

The Game-Changer: Rebate under Section 156(2)

Here is the most important provision that every resident taxpayer must know. Under Section 156(2) of the Income-tax Act, 2025 — if your total income taxable under the new regime does NOT exceed ₹12,00,000 — you are entitled to a rebate of 100% of your income-tax payable (up to a maximum of ₹60,000). This means:

💡 Key Takeaway:  The maximum amount not chargeable to tax under the new regime is ₹4,00,000 (by slab rate alone). However, thanks to the rebate u/s 156(2), effectively NO TAX is payable for total incomes up to ₹12,00,000. This distinction is CRITICAL for determining whether you can file Form 121 or not.

3. What is Form 121? — The New Form for old 15G/15H

Form 121 under Rule 211 of the Income-tax Rules, 2026 is a written declaration filed by a resident individual with the income payer (e.g., your bank). By filing this form, you declare that your estimated total income tax for the year is NIL — and therefore request the payer NOT to deduct TDS on the income mentioned in the form.

What Types of Income Does Form 121 Cover?

As per Note 5 of Form 121, this declaration applies to the following incomes [Section 393(6)]:

• Interest on bank fixed deposits, recurring deposits, savings accounts
• Interest from co-operative societies carrying on banking business
• Interest from post office deposits under Central Government notified schemes
• Interest on securities (bonds, debentures, NSC, etc.)
• Insurance commission
• Rent from specified person
• Income from units of mutual funds / administrator of specified undertaking
• Payment in respect of life insurance policies
• Dividends from domestic companies

What Information Do You Fill in Form 121?

Form 121 has two parts:

• Part A — To be filled by YOU (the person receiving income): Name, PAN, address, email, contact, tax year, nature of income, estimated income for which declaration is made, total number of Form 121 filed earlier in the year, estimated TOTAL income for the year, #details of ITR filed for last 2 years.

(# Important Change to note)

• Part B — To be completed by the BANK or payer: Verification that they received your Form 121 and confirming your details.

4.  Who Can File Form 121? (Eligibility Conditions)

This is the section where most people get confused. Let us break it down simply.

Condition 1: You Must Be a Resident Individual in India

Form 121 under Section 393(6) is available to individuals who are residents in India. Non-Residents and Persons Not Ordinarily Resident (PNOR) are NOT eligible to file this declaration.

Condition 2: Your Estimated Total Tax for the Year Must Be NIL

This is the heart of the declaration. You are declaring that after computing your total income (including the interest income for which you are filing the form) and after considering applicable deductions and rebates — your estimated tax liability for the year is NIL.

⚠️ Special Rule for NON-Senior Citizens (Below Age 60): Under Section 393(6) and Note 11 of Form 121, the payer (bank) SHALL NOT ACCEPT Form 121 from a non-senior citizen if the aggregate of ALL Section 393(6) specified incomes (bank interest, dividends, insurance commission, etc.) — credited, paid, or likely to be credited/paid during the tax year — EXCEEDS ₹4,00,000 (the maximum amount not chargeable to tax). This restriction applies even if the final tax after rebate u/s 156(2) is NIL. Senior Citizens (60+) are EXEMPT from this restriction — they enjoy more liberal treatment.

5.  When You Do NOT Even Need to File Form 121

This is a very practical and useful point that very few people know! Under Section 393(6) read with Note in the table, TDS is simply NOT deducted in certain situations — even without any declaration from you. You do NOT need to file Form 121 if:

Your Interest Income is BELOW the TDS Threshold

Remember the thresholds we saw in Section 1? If your total interest income from a bank does NOT cross the threshold, the bank simply will not deduct TDS — no Form 121 required at all!

6. Practical Examples — Can You File Form 121?

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7. When Can You NOT File Form 121? (Summary)

Let us summarise all the situations where Form 121 CANNOT be filed:

8.  How to File Form 121 — Step-by-Step Process

Filing Form 121 is a simple process. Here is how you do it:

📌 The payer (bank) is required to: (a) allot a Unique Identification Number to each Form 121 received, (b) report it in their TDS statement for the relevant quarter, and (c) forward a copy to the Principal CIT / CIT / Principal Commissioner by the 7th of the month following the month of receipt.

[Section 393(7) of Income-tax Act, 2025]

9. What If TDS Was Already Deducted? How to Get Your Refund

If you missed filing Form 121 in time and TDS has already been deducted from your interest income, do not panic. Here is what you should do:

1. File your Income Tax Return (ITR): Include the full interest income in your ITR. The TDS deducted will appear as a credit in your Form 26AS / AIS (Annual Information Statement). The IT system will automatically compute your tax liability and show TDS credit.

2. Claim the TDS Credit: In your ITR, under ‘Tax Credits’, claim the TDS amount deducted by the bank. If your net tax payable is NIL or lower than TDS deducted, the excess becomes a refund.

3. ITR Due Date: Normally 31st July of the year following the tax year for non-audit cases. Filing on time ensures prompt processing of refund.

4. Refund Timeline: After filing the ITR and e-verification, refunds are typically processed within 30-60 days for straightforward cases.

10. Quick Decision Guide — Can I File Form 121?

11. Common Mistakes to Avoid

12. Consequences of Filing a False Form 121

⚠️ Filing a false declaration in Form 121 is a SERIOUS offence. Under Section 482 of the Income-tax Act, 2025, any person who makes a false statement in a declaration is liable to prosecution. The penalty can be rigorous imprisonment extending from 3 months to 2 years, along with a fine. Always ensure your estimated total income figure is honest and realistic.

13. What Changed from the Old ITA 1961? (Old Form 15G / 15H vs New Form 121)

If you are familiar with the old Form 15G and Form 15H under the Income-tax Act, 1961, here is a quick comparison with the new provisions:

Key Takeaways — Summary

About the Author: Sagar Gambhir is a Chartered Accountant (CA) and US Certified Public Accountant (US CPA-License awaited).

Disclaimer: This article is for educational and informational purposes only and does not constitute professional tax advice. The provisions discussed are based on the Income-tax Act, 2025 and Income-tax Rules, 2026. Readers are advised to consult a qualified Chartered Accountant for advice specific to their situation. Tax laws are subject to amendments and notifications by the CBDT.

References: Income-tax Act, 2025 — Section 202 (New Regime Slabs), Section 156(2) (Rebate), Section 393 (TDS — Table Sl. No. 5), Section 393(6) (Declaration), Section 393(7) (Reporting); Form 121 — Income-tax Rules, 2026, Rule 211.