By CA Surekha Ahuja
Replacing Forms 15G and 15H under the Income-tax Act, 2025
Introduction: From Declaration to Data-Driven Tax Compliance
With effect from 1 April 2026, Form No. 121 replaces Forms 15G and 15H. This change marks a decisive shift from a declaration-based system to a data-driven, traceable compliance framework.
Each declaration is now:
- Tagged with a Unique Identification Number (UIN)
- Reported by the payer against its TAN
- Linked to the taxpayer’s PAN
- Reflected in system-based reporting such as TDS statements and AIS
The objective is clear: eliminate mismatches between income reporting, TDS data, and tax returns at a PAN–TAN level.
Legal Framework and Objective
Form No. 121 is prescribed under:
- Section 393(6) of the Income-tax Act, 2025
- Rule 211 of the Income-tax Rules, 2026
It enables eligible persons to declare that their estimated total income results in nil tax liability, allowing the payer not to deduct tax at source on specified payments.
Core Principle: Nil Tax Liability
The declaration is valid only where:
- Total income is properly estimated
- Deductions and rebates are considered
- Correct tax regime is applied
- Final tax liability is nil
This makes Form 121 a computation-based declaration, not a threshold-based formality.
Eligibility Position
| Category | Eligibility |
|---|---|
| Resident Individuals | Eligible where tax liability is nil |
| Senior Citizens | Eligible where tax liability is nil |
| Hindu Undivided Family | Eligible where tax liability is nil |
| Firms / LLPs | Not eligible |
| Companies | Not eligible |
| Non-residents | Not eligible |
Income Covered
The declaration applies to a wide range of incomes:
- Interest income
- Dividend income
- Mutual fund income
- Rental income
- Insurance commission
- Life insurance proceeds
- Provident fund withdrawals and pension receipts
- Other specified payments
Procedure and Mode of Filing
By the Taxpayer (Declarant)
Form No. 121 is not directly filed on the income-tax portal by the taxpayer.
It is furnished as a declaration to the payer:
- Before the scheduled transaction date
- Separately for each payer
- For each financial year
Modes:
- Physical submission, or
- Electronic submission (if enabled by payer)
By the Deductor (Payer)
The payer is responsible for system integration:
- Digitization of declaration (if physical)
- Generation of UIN
- Filing of Part B electronically on the portal
- Reporting in Quarterly TDS Statement (Form 140)
UIN and PAN–TAN Level Tracking
Each declaration is tracked through a 26-character UIN:
| Component | Description |
|---|---|
| Sequence Number | D + 9 digits |
| Tax Year | Example: 202627 |
| TAN | Payer’s TAN |
This creates a three-way linkage:
- PAN of taxpayer
- TAN of deductor
- UIN of declaration
AIS, TDS and ITR Reconciliation: Government’s Core Objective
The introduction of Form 121 is closely aligned with the Government’s broader objective of data consistency and mismatch elimination.
How the System Works
- Declarations (Form 121) are reported by the payer
- Transactions are captured in TDS returns (Form 140)
- Data flows into the taxpayer’s Annual Information Statement (AIS)
- Taxpayer files Income-tax Return (ITR)
Mismatch Scenarios Targeted
| Scenario | System Risk |
|---|---|
| Income received without TDS but not declared in ITR | High mismatch trigger |
| Form 121 filed but income later taxable | Red flag in AIS vs ITR |
| Multiple declarations across payers without consistency | Data inconsistency |
| Incorrect PAN / UIN reporting | Reconciliation failure |
Compliance Impact
- Increased automated scrutiny selection
- System-generated notices and alerts
- Higher audit visibility at PAN level
Form 121 is therefore not just a TDS tool—it is part of a data reconciliation ecosystem.
Consequences, Defaults and Penalties
Non-Filing of Form 121
- TDS is deducted
- Cash flow is impacted
- Refund only through return filing
Delayed Filing
- Not valid for that transaction
- TDS already deducted cannot be reversed
Incorrect Declaration (Tax Liability Not Nil)
- Tax becomes payable
- Interest liability arises
- Penalty for under-reporting or misreporting may apply
- In serious cases, prosecution provisions may be invoked
Non-Furnishing of PAN
- Declaration becomes invalid
- TDS at higher rate
Payer-Level Defaults
| Default | Consequence |
|---|---|
| Failure to generate UIN | Reporting breakdown |
| Non-filing of Part B | Penalty exposure |
| Non-reporting in TDS return | AIS mismatch risk |
| Delay in compliance | Late fees |
Caution Points for Taxpayers
- Compute total income from all sources before filing
- Do not rely only on exemption limits
- Ensure filing before transaction date
- Submit separate declarations for each payer
- Monitor income during the year
- Inform payer if tax position changes
Caution Points for Deductors
- Do not rely on incomplete declarations
- Ensure PAN validation
- Maintain UIN-wise control register
- File Part B within prescribed timelines
- Reconcile with TDS returns
- Maintain audit documentation
Dynamic Situations: Mid-Year Changes
If income increases during the year and tax becomes payable:
- Taxpayer should inform the payer
- TDS should be applied on subsequent payments
Failure to act may result in:
- Interest liability
- Penalty exposure
- Increased scrutiny risk
Practical Risk Matrix
| Situation | Risk Level | Impact |
|---|---|---|
| Correct declaration | Low | Smooth compliance |
| Non-filing | Medium | Cash flow impact |
| Late filing | Medium | TDS unavoidable |
| Incorrect estimation | High | Tax + interest + penalty |
| False declaration | Very High | Penalty and prosecution risk |
Professional Compliance Approach
For Taxpayers
- Estimate income carefully
- Compute tax accurately
- File only where tax liability is nil
- Maintain supporting working
For Deductors
- Maintain UIN records
- Ensure timely reporting
- Align Form 121 with TDS returns
- Maintain audit trail
Strategic Perspective
Form No. 121 represents a transition from:
Declaration-based compliance to PAN–TAN integrated data verification
This ensures:
- Reduced mismatches in AIS and ITR
- Improved tax transparency
- Stronger compliance monitoring
Conclusion
Form No. 121 is a powerful compliance mechanism, but it operates within a data-driven tax environment.
Correct usage ensures:
- No TDS deduction
- Efficient cash flow
- Clean tax reporting
Incorrect usage may result in:
- Tax liability
- Interest and penalties
- System-triggered scrutiny
Before furnishing Form No. 121, it is essential to confirm:
The estimated total income has been properly computed and results in nil tax liability, and that such position will remain consistent with reporting in AIS and ITR.
