Overview
Fixed Deposits (FDs) is one of the most popular investment options in India due to safety and guaranteed returns. However, interest earned on Fixed Deposits is taxable, and banks deduct Tax Deducted at Source (TDS) when the interest crosses certain limits.
TDS Rate on Fixed Deposit
Under Section 194A of the Income Tax Act (now Section 393 of the new Income Tax Act, 2025), banks and NBFCs are required to deduct Tax Deducted at Source (TDS) at 10% on FD interest once it crosses a specified annual limit. If you do not submit your PAN to the bank, the rate doubles to 20%.
TDS Limits On Fixed Deposit Interest
From FY 2026-27, TDS will not be deducted from FD interest as long as it does not exceed the below mentioned limits:
| Category | Threshold Limits | TDS Rate (with PAN) | TDS Rate (without PAN) |
| General individuals (below 60) | ₹50,000 | 10% | 20% |
| Senior citizens (60-79 years) | ₹1,00,000 | 10% | 20% |
| Super senior citizens (80 Above) | ₹1,00,000 | 10% | 20% |
Avoiding TDS On Fixed Deposits Using Form 121
- Form 121 allows eligible taxpayers to request banks not to deduct Tax Deducted at Source (TDS) on their Fixed Deposit (FD) interest if their total tax liability for the year is zero.
- This forms are only for resident taxpayers and must be submitted at the beginning of each financial year.
- If you forget to submit the form and TDS gets deducted, you can claim the refund later while filing your Income Tax Return (ITR).
- Since this forms are valid for only one year, they must be submitted every year.
For Example
Case 1: Bank with Core Banking System
Mr. Aaditya aged 55 has FDs in Bank A, which has adopted the Core Banking System in its operations. Here Core Banking System (CBS) means a centralized banking system where all branches of a bank are connected through one common software platform and the bank can view and track all your accounts, fixed deposits, interest income, and transactions across every branch as a single customer profile.
Mr. Aaditya has FDs across two branches of the same CBS bank. The interest from each branch is as follows.
- Branch A: ₹35,000 interest
- Branch B: ₹25,000 interest
Since this bank runs on Core Banking System and the total interest for all branches is above ₹50,000 threshold. TDS is calculated on the combined ₹60,000 × 10% = ₹6,000
Case 2: Bank without Core Banking System
If bank is without the Core Banking System in its operations, branches might have considered each Fixed Deposits separately.
Since each branch amount is below ₹50,000, no TDS will be deducted, even though total is ₹60,000.
Case 3: No TDS using Form 121
If Mr. Aaditya's total income in a financial year is ₹6 lakh (which is below the new tax regime's ₹12 lakh rebate limit), his actual tax liability is nil. He can either submit Form 121 at the start of the year to prevent TDS, or file his ITR and claim the ₹6,000 as a full refund.
What is Form 121?
Form 121 is a proposed declaration form that allows taxpayers to inform the deductor about:
- Their overall income position
- Available deductions
- Expected tax liability
This helps banks or financial institutions deduct TDS more accurately, instead of applying the standard deduction rate.
Key Features of Form 121
- Unified & Age-Neutral: Unlike the previous system where Form 15G was for individuals under 60 and Form 15H was for senior citizens, Form 121 is designed to be a single, age-neutral form for all eligible residents.
- Purpose: It serves as a declaration that your total annual income is below the taxable limit, instructing the bank to pay your full interest without any tax cuts.
- Mandatory PAN: A valid PAN must be linked to your bank account to use this form. Without a PAN, banks will deduct TDS at a higher rate of 20% regardless of the declaration.
How Form 121 Helps Save Tax?
Submitting Form 121 allows banks to:
- Consider total taxable income before deducting TDS
- Reduce unnecessary tax deduction on FD interest
- Improve taxpayer cash flow
- Reduce dependency on refunds while filing ITR
Difference Between Form 121 and Form 15G/15H
| Feature | Form 121 | Form 15G | Form 15H |
| Who can submit | Individuals with deductions | Individuals below 60 | Senior citizens |
| Purpose | Adjust TDS based on total income | Avoid TDS if income below limit | Avoid TDS for seniors |
| Income reporting | Detailed | Limited | Limited |
FAQs
What is Form 121 in income tax?
Form 121 is a declaration form intended to help deductors calculate accurate TDS based on the taxpayer’s overall income and deductions.
Can Form 121 stop TDS on FD interest?
It may reduce or adjust TDS, depending on the taxpayer’s final tax liability.
Is FD interest taxable even if TDS is not deducted?
Yes. FD interest must always be reported in the income tax return.
What is the TDS limit for FD interest in 2026?
₹50,000 for regular individuals and ₹1,00,000 for senior citizens.
Can Form 15G or 15H still be used?
Yes. These forms continue to be used where total income is below the taxable limit.
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