Millions of fixed deposit investors across India were caught in a whirlwind of confusion in early 2026 when new TDS rules came into effect under the Income Tax Act 2025. Banks began issuing notices about Form 121, Section 393, and revised threshold limits—leaving taxpayers scrambling to understand what changed, how it impacts their FD returns, and whether they need to take urgent action. The good news? The government has clarified TDS rules on FD interest under the Income Tax Act 2025, bringing much-needed relief to small investors and senior citizens alike.
In this comprehensive guide, we'll decode every critical change, explain official clarifications from the CBDT, and show you exactly how to navigate the new FD TDS landscape for Tax Year 2026-27. Whether you're a retiree relying on interest income or a salaried individual with savings in fixed deposits, this article will equip you with actionable insights to optimize your tax compliance and avoid unnecessary deductions.
- TDS exemption limit has been hiked to ₹1 lakh in a financial year for senior citizens and ₹50,000 for general citizens on FD interest income
- Form 121 replaces Forms 15G and 15H from April 1, 2026, as a single unified self-declaration form
- TDS at 10% is deducted on Fixed Deposit interest under new Section 393 replacing old Section 194A from 1st April 2026
- TDS rates and thresholds remain the same under both Acts, with deductions governed by the date of credit or payment
Understanding the Income Tax Act 2025: What Changed for FD Investors
The Indian tax landscape underwent a historic transformation on April 1, 2026, when the Income Tax Act, 1961, stands repealed and is replaced by the Income Tax Act, 2025. This wasn't merely a cosmetic makeover—the new Act brought structural changes in how TDS obligations are classified, reported, and enforced.
For fixed deposit investors, the most significant changes include:
From Section 194A to Section 393: Simplified TDS Framework
The Income Tax Act, 2025 consolidates TDS provisions into Section 393, which covers all TDS payments to residents and non-residents, organized in a tabular format. Previously scattered across 60+ individual sections, TDS rules are now easier to navigate. Starting from 1st April 2026, banks and similar institutions will deduct TDS at 10% on Fixed Deposit interest under new Section 393 replacing old Section 194A, but only if total interest per bank exceeds specified thresholds.
The practical impact? The TDS rates and monetary thresholds for all categories of payments have been retained—the consolidation is a simplified tabular presentation and not a change in TDS rates or tax policy.
Tax Year Replaces Assessment Year: New Terminology
From 1 April 2026, the Income Tax Act, 2025 replaces the Financial Year and Assessment Year system with a single concept called Tax Year—income earned in Tax Year 2026-27 is filed and assessed in Tax Year 2027-28. This terminology shift eliminates the long-standing confusion between FY and AY, making tax filing more intuitive.
How the Transition Works: Which Act Applies to Your FD Interest?
This is where many investors got confused. The Act governing TDS depends on when the earlier event of credit or payment occurs—if it occurs on or before 31st March 2026, the Income Tax Act 1961 applies; if it occurs on or after 1st April 2026, the Income Tax Act 2025 applies.
Example: If your bank credited FD interest to your account on March 25, 2026, the old Act applies even if payment happens in April 2026. Conversely, interest credited on April 5, 2026 falls under the new Act.
Big Relief: Revised TDS Threshold Limits for FY 2026-27
One of the most welcome changes for FD investors is the significant increase in TDS exemption thresholds, providing direct cash flow relief to millions.
New Threshold Limits Announced
For individual taxpayers, the new limit has been raised to Rs. 50,000 per financial year, up from the earlier Rs. 40,000. This means if your total interest income from fixed deposits in a single bank remains under ₹50,000 annually, no TDS will be deducted.
The relief for senior citizens is even more substantial: Senior citizens benefit as their threshold has been doubled from Rs. 50,000 to Rs. 1 lakh—if you're aged 60 or above, interest income up to Rs. 1 lakh in a financial year from FDs and RDs will not attract TDS.
How Bank Structure Affects TDS Calculation
The threshold application varies based on whether your bank operates on a Core Banking System (CBS). For CBS banks, total interest across all branches is aggregated—if it exceeds Rs. 50,000, TDS is deducted. However, for non-CBS banks, the limit applies separately to each branch.
| Category | Old Threshold (Till March 2025) | New Threshold (From April 2025) | TDS Rate (With PAN) | TDS Rate (Without PAN) |
|---|---|---|---|---|
| General Taxpayers (Below 60 years) | ₹40,000 | ₹50,000 | 10% | 20% |
| Senior Citizens (60 years & above) | ₹50,000 | ₹1,00,000 | 10% | 20% |
| NBFC/Company FDs | ₹10,000 | ₹10,000 | 10% | 20% |
Example: Mrs. Sharma, 65, has FDs earning ₹95,000 annual interest across three branches of SBI (a CBS bank). Since her total is under ₹1,00,000, no TDS will be deducted. However, if she had FDs in a non-CBS bank with ₹30,000, ₹35,000, and ₹30,000 interest across three branches, no TDS would be deducted from any branch despite the combined total being ₹95,000.
Form 121: The Game-Changer Replacing Form 15G and 15H
Perhaps the most talked-about change in the new TDS regime is the introduction of Form 121, which has replaced the age-old Forms 15G and 15H that taxpayers have used for decades.
What is Form 121?
Starting 1 April 2026, unified Form 121 replaces Form 15G and 15H under Section 393(6) of the Income-tax Act 2025, read with Rule 211 of Income-tax Rules 2026—it is a unified self-declaration used by resident individuals and HUFs to prevent TDS on income when total tax liability is nil.
Key Features of Form 121
- Age-Neutral: The age-based distinction is gone—earlier, Form 15G was for individuals below 60 and Form 15H for senior citizens. Now everyone uses Form 121.
- Annual Validity: Like its predecessors, Form 121 is valid for one financial year and must be submitted afresh annually.
- Digital Integration: A Unique Identification Number (UIN) system is introduced for every Form 121 submission, improving tracking and compliance.
- Wide Applicability: The form covers interest on bank deposits, dividends, pension withdrawals, mutual fund income, and rental income.
Who Should Submit Form 121?
You should submit Form 121 if:
- Your expected interest income exceeds the threshold (₹50,000 or ₹1,00,000 for seniors)
- Your total annual income is below the basic exemption limit (₹4 lakh under new regime, ₹2.5 lakh under old regime)
- Your final tax liability for the year is nil or zero after claiming deductions
Real-Life Scenario: Mr. Ankit, 45, has a ₹6,00,000 FD earning ₹45,000 annual interest. His total annual income is ₹2,40,000. If his total income is below the basic exemption limit, he can submit Form 121 to the bank to prevent TDS deduction, and then claim full refund when filing ITR.
How to Submit Form 121
The submission process is straightforward:
- Download Form 121 from your bank's website or the Income Tax e-filing portal
- Fill in your PAN, name, residential status, and contact details
- Declare nature of income (interest, dividend, etc.)
- State your estimated total income for Tax Year 2026-27
- Submit online via net banking or physically at your bank branch
- Submit at the beginning of the financial year (ideally by April)
Pro Tip: Use TaxFetch's Income Tax Calculator to estimate your total annual income and tax liability before submitting Form 121.
Government Clarifications: Resolving the FD TDS Confusion
The Income Tax Department and CBDT issued multiple clarifications in March-April 2026 to address widespread confusion among taxpayers and banks.
CBDT Guidelines Now Mandatory
A critical clarification came regarding the binding nature of CBDT circulars. Section 400(2) of the Income Tax Act, 2025, is amended to restore the binding nature of CBDT guidelines on both tax authorities and deductors. From 1 April 2026, CBDT circulars on TDS and TCS carry mandatory compliance weight—the argument that CBDT circulars are only advisory no longer holds.
Official FAQs on TDS Transition
The Income Tax Department published detailed FAQs addressing common taxpayer queries:
Q: If my FD matured in March 2026 but interest was paid in April 2026, which Act applies?
A: The TDS provisions of the Income Tax Act 1961 shall apply, since the triggering event occurred prior to 1 April 2026—the commencement of the Income Tax Act 2025 does not affect liabilities that arose under the 1961 Act.
Q: Do I need to update my bank systems?
A: Yes, systems are required to be updated to reflect new section numbering, terminology, and reporting requirements under the Income Tax Act 2025.
Special Exemptions and Reliefs
The government also clarified certain exemptions. Interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person is now fully exempt from income tax, with no TDS to be deducted—the earlier Rs. 50,000 ceiling does not apply.
TDS Compliance: What FD Investors Must Do Now
With the new rules in place, here's your action checklist for Tax Year 2026-27:
Immediate Actions
- Review Your FD Portfolio: Calculate total expected interest from all FDs across all banks
- Submit Form 121: If eligible, submit to each bank where you hold FDs before the first interest credit
- Link PAN with Aadhaar: Mandatory for TDS at lower 10% rate instead of 20%
- Update Bank Records: Ensure your PAN is registered with all banks
Throughout the Year
- Monitor TDS Credits: Check your Form 26AS / TDS using TaxFetch's TDS Fetch Tool quarterly
- Maintain Records: Keep FD certificates, interest certificates, and Form 121 acknowledgments
- Plan Advance Tax: If your total tax liability exceeds ₹10,000 after FD interest inclusion, pay advance tax quarterly
At Year-End
- File ITR on Time: Include all FD interest income even if no TDS was deducted
- Claim TDS Refund: If TDS was deducted but your actual liability is lower, claim refund via ITR
- Carry Forward Losses: Utilize any losses to offset interest income
Example Calculation: Mr. Verma, 55, earns ₹5,50,000 salary and ₹65,000 FD interest. His total income is ₹6,15,000. Under the new tax regime with standard deduction of ₹75,000, his taxable income is ₹5,40,000. He must pay tax on this amount. Use TaxFetch's Income Tax Calculator to compute exact liability.
Common Mistakes to Avoid
Even with clarifications, many FD investors make these critical errors:
1. Not Submitting Form 121 to Every Bank
Form 121 must be submitted separately to each bank where you hold FDs. A common misconception is that one submission covers all institutions.
2. Submitting Form 121 When Not Eligible
If your total income exceeds the basic exemption limit, submitting Form 121 is incorrect and can lead to penalties. The forms declare that the taxpayer's income is below the taxable threshold—incorrect or false declarations may lead to penalties.
3. Forgetting to Report FD Interest in ITR
Even if no TDS is deducted, all FD interest must be reported in your ITR. FD interest must always be reported in the income tax return.
4. Ignoring NBFC FDs
For NBFC FDs, the threshold limit is Rs. 10,000—the interest income will be taxable if earnings exceed Rs. 10,000. This is much lower than bank FDs.
5. Not Linking PAN with Aadhaar
Without PAN-Aadhaar linkage, TDS is deducted at 20% instead of 10%, significantly impacting your returns.
Strategic FD Planning for Zero or Minimal TDS
Smart investors can structure their FD portfolio to minimize or eliminate TDS deduction:
Strategy 1: Distribute Across Multiple Banks
By dividing FD principal across banks, taxpayers can keep per-bank interest under TDS thresholds and ensure fresh FDs remain below Rs.10 lakh for SFT reporting. For example, instead of a ₹20 lakh FD in one bank earning ₹1,40,000 interest, split it into four banks with ₹5 lakh each earning ₹35,000 per bank—no TDS will be deducted.
Strategy 2: Use Senior Citizen Benefit
For those aged 60+, the ₹1 lakh threshold offers significant flexibility. A ₹15 lakh FD at 7% yields ₹1,05,000 interest—just marginally above the limit.
Strategy 3: Optimize with Tax-Saver FDs
While interest is still taxable, investing in 5-year tax-saver FDs provides Section 80C deduction up to ₹1.5 lakh on the principal, reducing overall tax liability.
Strategy 4: Time Your FD Maturity
Structure FD maturities across multiple years to distribute interest income and potentially stay within lower tax slabs each year.
Need help optimizing your FD portfolio? Check out TaxFetch's Bank Statement Analyser to track all your FD investments and interest income in one place.
Frequently Asked Questions (FAQ)
What is Form 121 and how does it replace Form 15G and 15H from April 1, 2026?
Form 121 is a new unified self-declaration form introduced under Income-tax Rules 2026 that replaces both Form 15G and Form 15H from April 1, 2026. It is age-neutral and applies to all taxpayers—individuals below 60, senior citizens, and HUFs—who want to avoid TDS on income like fixed deposit interest when their total tax liability is nil. The form simplifies compliance by eliminating the need for separate age-based forms and can be submitted once annually to banks and financial institutions.
What are the new TDS threshold limits for fixed deposit interest in FY 2026-27?
For FY 2026-27 under the Income Tax Act 2025, TDS on FD interest is deducted only if interest exceeds ₹50,000 per annum for general taxpayers and ₹1,00,000 per annum for senior citizens aged 60 years and above. This is a significant increase from the previous limits of ₹40,000 and ₹50,000 respectively. These thresholds apply per bank, and no TDS is deducted if interest income stays below these limits.
How does Section 393 replace Section 194A for FD TDS from April 2026?
From April 1, 2026, Section 393 of the Income Tax Act 2025 replaces the old Section 194A of the Income Tax Act 1961. Section 393 consolidates all TDS provisions into a simplified tabular format with numeric payment codes. However, the TDS rates and threshold limits remain unchanged at 10% (with PAN) and 20% (without PAN). The shift is primarily a structural overhaul to simplify compliance, and the governing Act depends on when the payment or credit of interest occurs.
Can I submit Form 121 online to avoid TDS on my fixed deposit interest?
Yes, Form 121 can be submitted online through your bank's net banking portal or mobile app, similar to the old Form 15G and 15H. You need to fill in your PAN, estimated income for the year, nature of income, and declare that your total tax liability is nil. The form is valid for one financial year and must be submitted annually at the beginning of each year to prevent TDS deduction on eligible interest income.
What happens if TDS is already deducted on my FD interest for FY 2026-27?
If TDS has already been deducted on your fixed deposit interest for FY 2026-27, you can claim a refund when filing your Income Tax Return (ITR) for Tax Year 2027-28. The TDS deducted will be reflected in your Form 26AS or the new Form 168 under the 2025 Act. If your actual tax liability is lower than the TDS deducted or nil, the excess amount will be refunded after ITR processing.
Conclusion: Navigate the New FD TDS Rules with Confidence
The Income Tax Act 2025 has brought transformative changes to how TDS is handled on fixed deposit interest. While the initial confusion was understandable, the government's clarifications have made the path forward clear. The key takeaways: higher thresholds provide direct relief, Form 121 simplifies compliance by removing age barriers, and Section 393 streamlines the legal framework without changing actual tax rates.
For FD investors, the new regime is ultimately beneficial—especially for senior citizens who now enjoy a ₹1 lakh TDS-free threshold. However, compliance remains critical. Submit Form 121 timely, track your TDS credits, and always report interest income in your ITR.
Ready to take control of your FD taxation? Use TaxFetch's comprehensive suite of tax tools to calculate your exact tax liability, track TDS deductions, and ensure seamless ITR filing. Stay informed, stay compliant, and make your fixed deposits work smarter for you in FY 2026-27.