FD Interest Tax Shock: New Rules, Higher Limits & Crucial Form 121 Impact Your ITR Now
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For millions of Indian taxpayers, the rules for fixed deposit (FD) interest income have undergone a significant overhaul for the current Financial Year (FY) 2026-27. The biggest change is the introduction of a new unified declaration form, Form 121, which now replaces the familiar Form 15G and Form 15H. This move by the Income Tax Department aims to streamline how individuals declare their nil tax liability to avoid Tax Deducted at Source (TDS) on their FD earnings, impacting Income Tax Return (ITR) filings due by July 31, 2026. This isn't just about a new form; it's part of the broader Income Tax Act, 2025, which has consolidated TDS provisions under Section 393, replacing the older Section 194A. While the core principle remains—FD interest is fully taxable under 'Income from Other Sources' and added to your Income Tax Slab—the thresholds for TDS deduction have also been updated: ₹50,000 for general citizens and ₹1,00,000 for senior citizens (60+) per bank annually. Many taxpayers mistakenly believe that once TDS is deducted at 10% (or 20% without PAN), their tax obligation is fulfilled; however, TDS is merely an advance tax, and the full interest amount must still be declared in your ITR. Crucially, senior citizens can still leverage Section 80TTB for a deduction of up to ₹50,000 on FD interest, provided they opt for the Old Tax Regime. To navigate these changes, taxpayers must proactively submit Form 121 to their banks if their total income falls below the taxable limit, preventing unnecessary TDS deductions. It's also vital to cross-verify all FD interest income and TDS deductions with your Tax Credit Statement (Form 26AS and Annual Information Statement) available on the Income Tax Department's e-filing portal before filing your ITR. Failure to accurately report could lead to tax notices or delays in refunds, with options like filing an Updated Income Tax Return (ITR-U) available for corrections, albeit with potential penalties.