How to Avoid TDS on FD Interest: Form 15G, 15H vs New Form 121

TDS

If your bank is deducting TDS on your fixed deposit (FD) interest even though your total income is below the taxable limit, you are essentially losing liquidity unnecessarily. The tax may be refundable later—but why block your cash in the first place?

With the introduction of the Income-tax Act, 2025 (effective 1 April 2026), the government has streamlined the old Form 15G and 15H mechanism into a single declaration—Form 121. Understanding how and when to use this form is critical for efficient tax planning.

1. Why Banks Deduct TDS on FD Interest

Banks are obligated to deduct TDS on interest once it crosses specified thresholds, regardless of your actual tax liability.

TDS Thresholds (FY 2026–27)

CategoryThreshold Limit
Senior Citizens (60+)₹1,00,000
Others₹50,000

Once your interest exceeds these limits, TDS is deducted—even if your final tax payable is zero.

2. The New Tax Regime Advantage

Under the new tax framework:

  • No tax up to ₹4,00,000 (basic slab)
  • Effective zero tax up to ₹12,00,000 due to rebate

Key Insight:

Even if tax is computed between ₹4L–₹12L, it is fully eliminated through rebate. However, TDS rules do not automatically consider this, which is why Form 121 becomes important.

3. What is Form 121?

Form 121 is a self-declaration submitted to your bank, stating that:

“My estimated total tax liability for the year is NIL—do not deduct TDS.”

It replaces:

  • Form 15G (non-senior citizens)
  • Form 15H (senior citizens)

4. Types of Income Covered

Form 121 applies to:

  • Bank FD/RD interest
  • Savings account interest
  • Post office deposits
  • Interest on securities
  • Dividends
  • Insurance commission
  • Mutual fund income (specified cases)
  • Rent (specified cases)

5. Eligibility Conditions for Filing Form 121

Basic Conditions:

You must:

  • Be a resident individual
  • Have estimated total tax liability = NIL

Special Rules Based on Age

✔ Senior Citizens (60+)

  • Can file Form 121 if total tax is NIL
  • No restriction on interest amount

⚠ Non-Senior Citizens (Below 60)

Must satisfy both conditions:

  1. Total tax = NIL
  2. Aggregate specified income (interest, dividends, etc.) ≤ ₹4,00,000

👉 If this income exceeds ₹4 lakh, Form 121 cannot be filed, even if tax is ultimately zero due to rebate.

6. When You Don’t Need Form 121

You don’t need to submit Form 121 if:

  • Your interest income is below TDS threshold
    • ₹50,000 (non-senior)
    • ₹1,00,000 (senior)

In such cases, banks will not deduct TDS at all.

7. Practical Example

Case: Non-Senior Citizen

  • Interest Income: ₹1,80,000
  • Other Income: NIL
  • Total Income: ₹1,80,000

✔ Tax = NIL
✔ Income < ₹4,00,000

👉 Eligible to file Form 121
👉 Avoid TDS deduction

8. When You Cannot File Form 121

You are NOT eligible if:

  • Total income exceeds ₹12 lakh (tax payable exists)
  • You are a non-resident
  • You are a company or firm
  • Your income is not covered (e.g., capital gains, business income)
  • You are a non-senior citizen and specified income exceeds ₹4 lakh

9. How to File Form 121

Step-by-Step Process:

  1. Obtain Form 121 (bank portal or branch)
  2. Fill personal and income details
  3. Declare estimated total income
  4. Provide past ITR details (if available)
  5. Sign and submit to bank
  6. Submit before interest is credited
  7. Repeat every financial year

10. What If TDS Is Already Deducted?

If you missed filing Form 121:

  1. File your Income Tax Return (ITR)
  2. Report full interest income
  3. Claim TDS credit
  4. Get refund if tax payable is NIL

Example:

  • Total Income: ₹9,50,000
  • Tax computed: ₹15,000
  • Rebate: ₹15,000
  • Net Tax: NIL

👉 Entire TDS becomes refundable

11. Common Mistakes to Avoid

  • Filing Form 121 when tax is actually payable
  • Ignoring income from other sources
  • Filing with only one bank (must file with each payer)
  • Not renewing annually
  • Assuming Form 121 removes ITR filing requirement

12. Serious Consequences of False Declaration

Filing incorrect information in Form 121 is a criminal offence.

Possible consequences:

  • Imprisonment (3 months to 2 years)
  • Monetary penalty

👉 Always declare income accurately.

13. Key Changes from Old Law

AspectOld SystemNew System
Forms15G / 15HForm 121
LawIncome-tax Act, 1961Income-tax Act, 2025
Basic Exemption₹3,00,000₹4,00,000
Rebate Limit₹7 lakh₹12 lakh
Senior Citizen BenefitLiberalEven more streamlined

Read More: Compounding of Income Tax Offences: Eligibility, Timelines & Key Conditions (Updated 2024 Guidelines)

Final Takeaways

  • TDS on FD interest is automatic but avoidable
  • Form 121 helps prevent unnecessary deduction
  • Senior citizens enjoy greater flexibility
  • Non-senior citizens must monitor ₹4 lakh income cap
  • If TDS is deducted, refund is still recoverable via ITR

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