(A new framework to scrap Form 121 - earlier 15G/15H – in favour of online declaration of non-taxable income on the Income Tax Deptt.’s website for exemption of TDS. A paperless system to save taxpayers from rushing to banks every April with photocopies of Form 121, banks/NBFC’s from drowning in paperwork with heavy storage burden and the IT Deptt. from having the necessity to collate millions of forms. The proposal highlights improved efficiency, accuracy, ease of compliance and pre-emptive monitoring and aligns with the digital India initiative potentially benefitting crores of stakeholders.)
BACKGROUND
Form 121, just like its earlier versions, i.e., Forms 15G and Form 15H, used for declaring non-taxable income to avoid TDS, is primarily paper-based and is inconvenient for everybody, the tax-payer, the banks/NBFC’s and the IT Deptt. This form forces the tax-payers and banks do avoidable paperwork and waste thousands of man-hours. It does not give the necessary information to the IT Deptt. at one place and it is quite difficult for them to verify whether the tax-payer has provided correct data in the forms.
Some banks/NBFC’s today allow the tax-payers to submit the basic data required for filling Forms 15 G/H online and they do not insist that the tax-payers submit a hard copy. It is expected that these organizations will continue this practice by suitably modifying their software even after renumbering of Forms 15 G/H as Form 121. This is saving some inconvenience for the tax-payers but not for the banks/NBFC’s or the IT Deptt. because further processing of these forms remains paper-based only. Actually, these banks create these forms electronically on the basis of the online data provided by the tax-payer and print them themselves on paper for their own use and for onward submission to the IT Deptt.
PROPOSAL
This proposal offers a framework for the replacement of Form 121 with online declaration of non-taxable income on the e-Filing Portal of the Income-tax Department potentially benefitting crores of stakeholders, i.e., taxpayers, banks/NBFCs and the IT Deptt. by avoiding manual paper-based system and aligning with the Digital India initiative. The method is completely paperless and most importantly, it is very easy to implement.
We all have our accounts on the portal of the Income-tax Deptt. where we file our Income-tax returns every year. We log into their site using our User Id (which is nothing but our PAN) and password for filing our return and accessing some other data like our AIS, TIS, Form 26AS etc.
CREATION OF NEW LINK AND FINANCIAL YEAR SELECTION
The IT Deptt. should create a new link on their web-site which may be worded something like – “Declaration of Non-taxable income to Avoid TDS”. On clicking this link, the tax-payer will be asked to select the Financial Year for which he wants to furnish this declaration. Normally, this will be current financial year only. There is no relevance of any old financial year. However, during the months of January to March, some tax-payers may like to furnish declaration for the next financial year, i.e., the one which will start from April and, therefore, they may be allowed to choose forthcoming financial year also besides the current year.
DECLARATION OF ESTIMATED INCOME BY TAX-PAYER
After this, the tax-payer will be asked to type his estimated taxable income for the chosen financial year which should not exceed tax-free limit. Currently, it is 4 Lakh for people under 60 years and 12 Lakh for those above this age. There will be no need for the tax-payer to type his age since this is already available with the IT Deptt. On the contrary, the software can display the age of the tax-payer on the screen and, accordingly, the maximum value of estimated income can also be displayed as per the age of the tax-payer (4 Lakh or 12 Lakh). If the tax-payer types a figure which is more than the relevant maximum value, an error message will be displayed and the tax-payer will not be allowed to continue.
Also, there is no need for the tax-payer to furnish his Name, Address, Permanent Account Number, Status, Residential status, Email id, Contact number, Date of Birth/ Incorporation since all this data is already known to the Deptt. These can be displayed on the screen when the user clicks on the link.
ENTRY OF TAN’S BY TAX-PAYER
After selecting the financial year and typing the estimated income for that year, the tax-payer will be asked to type TAN of all the banks/NBFC’s where he has investments and who would be paying him interests/dividends etc. during the financial year. As per the current practices, he will need to type TAN of all the banks which are expected to pay him interest of more than Rs. 1 Lakh if he is a Sr. Citizen. Otherwise, he will type the TAN of all those banks who will pay him more than Rs. 50,000/-.
The regular depositors can find the TAN of a particular bank/NBFC from Form 16A. TAN is available in form 26AS/AIS also. Presently, some tax-payers are filling TAN's in schedule TDS2 of their ITR. If this proposal is really implemented, TAN's will be given wide publicity. All application forms, Fixed Deposit Receipts, Bonds, Debentures etc. will compulsorily specify TAN. All mobile apps and websites accepting investments will display TAN. Additionally, a search mechanism, similar to the one which banks have on their websites for searching IFSC of bank branches, can also be provided, if possible. Search Engines may also help in finding TAN’s of various banks/NBFC’s.
This is all. The tax-payers need not do anything more. There is no need for them to provide the details of the 2 previous income-tax returns, newly introduced in Form 121. This is own data of the IT Deptt. and it is already available with them. When the user proceeds to type his estimated income for the selected Financial Year, the software can display the income reported/ assessed in his two latest income-tax returns, if thought meaningful.
UPDATION OF BANKS’ DATABASES
All the banks/NBFC’s may already be having their accounts on the portal of IT Deptt. since they are furnishing data to AIS/26AS statements. If they don’t, their accounts can be created. When a bank logs into its account, it will be shown the PAN’s of all the tax-payers who have typed its TAN to indicate that the bank should not deduct IT at source from their payments. The bank can, thus, update its database accordingly so that its interest calculation software does not impose TDS on these tax-payers. They can do it either manually, or still better, can develop a computer program which will read the database of the IT Deptt. and update their databases automatically. For this, they can coordinate with the IT Deptt. and request a controlled/restricted access of its database. The IT Deptt will have to allow the banks to access only PAN of these tax-payers and no other data stored in its database. This has minimal security risk.
Banks/NBFC’s should perform this step one day before they are to pay to their depositors or just before running their interest calculation software.
UPDATION OF IT DEPARTMENT’S DATABASE BY BANKS/NBFC’S
The banks will, then, fill following two items on the portal of the IT Deptt. for each tax-payer:
1. Income which the bank will pay to the tax-payer
2. Nature of this income
Even this data entry can be automated by writing a computer program and data can be copied from Banks’s database to IT Deptt.’s database automatically.
Banks/NBFC’s can perform this step periodically, i.e., weekly or every fortnight.
There is no need for the bank to generate 26-character Unique Identification Number (UIN).
It should be noted here that the banks are already providing income data of the tax-payers to the IT Deptt. for inclusion in AIS/TIS/26AS. The only difference is that presently, they furnish the income which has actually been paid to the tax-payer for the purpose of the Income-tax Return after the financial year has ended. Whereas in this proposal, the banks will also be furnishing the income payable to the tax-payers for the purpose of Form 121 at the beginning of the year. Therefore, the technology not only already exists, but is being used also.
Needless to say that there will be no need for the tax-payer to furnish any information about Forms 121 filed earlier since income payable to him by all the banks will be available at the same place.
There will be no need for the banks to provide following Details of the person responsible for paying income since all this will already be known to the IT Deptt.:
1. Name
2. Address
3. Permanent Account Number
4. Email id
5. Contact number
TAGGING OF PAN’s FOR FAULTY DECLARATIONS BY THE IT DEPARTMENT
Now, the total income payable to a tax-payer from all banks/NBFC’s is available to the IT Deptt. at the same place. It can, therefore, tag the PAN’s for faulty declarations, i.e., PAN’s of those tax-payers for whom the total income exceeds tax-free income. Just at the click of a mouse button the IT Deptt. can do it with the help of a short computer program written for this purpose.
The IT Deptt. can do it daily, since no efforts are required in doing it. Or, they can do it less frequently, if they so desire.
The banks/NBFC’s will skip faulty PAN’s while copying the PAN’s from IT Deptt.’s database to their own database. Thus, no relief in TDS will be given to the tax-payers having faulty declarations.
So simple, isn’t it? The jobs of both, the tax-payers and the Banks/NBFC’s, are no longer a task. They are just a breeze now.
However, the biggest beneficiary will be the IT Deptt. They always keep wondering about total income declared by a tax-payer through his 121 forms. What if it exceeds tax-free income? This is possible since all Forms 121 are submitted to different banks/NBFC’s and there is no coordination between them. I understand that as per rule it is necessary for the banks to forward a copy of Form 121 to the IT Deptt. However, they may not do this religiously. Even if they do, some forms may get lost or misplaced during transit. Also, it is a Herculean task for the IT Deptt. to collate and check millions of forms. If this proposal is implemented, the IT Deptt. can, at the click of a mouse button, generate an exception report of all such tax-payers. No need of breaking head on how much income is declared in current form, how much earlier, and how much is total etc. etc.
KEY BENEFITS
1. For Taxpayers: No branch visits or sending forms by post/brokers, no need of taking acknowledgement, no risk of lost/misplaced forms
2. For Banks/NBFCs: No need to generate UIN, no quarterly filing with IT Deptt., no storage of forms
3. For the IT Deptt.: Enables real-time PAN-TAN income mapping and automated e-verification if income declared through forms exceeds tax-free limit, no papers to collate
4. General Benefits: Substantial savings in paper, printing and photocopying cost, avoidance of postal charges and travel, environment protection, significant reduction in compliance costs
LEGAL REQUREMENTS
A minor amendment to Section 393(6) of the Income-tax Act, 2025 and Rule 211 (erstwhile Sec 197A+Rule 29C) will be required. As per these, the declaration should be furnished to the person responsible for paying the income. Direct filing on the IT Deptt.’s portal needs this to change. These rules also require the generation of UIN which is unnecessary in this proposal. An amendment, therefore, will be required.
EXAMPLE
There are 3 tax payers whose PAN’s are PAN1, PAN2, and PAN3. There are 4 banks with TAN’s as TAN1, TAN2, TAN3 and TAN4.
The interest amounts to be paid by these banks to the tax-payers are given below:
To tax-payer with PAN1
1. TAN1 will pay Rs. 55,000/-
2. TAN2 Nil
3. TAN3 will pay Rs. 60,000/-
4. TAN4 will pay Rs. 65,000/-
Total Income of PAN1 = Rs. 1,80,000/-
To tax-payer with PAN2
1. TAN1 will pay Rs. 70,000/-
2. TAN2 will pay Rs. 75,000/-
3. TAN3 Nil
4. TAN4 will pay Rs. 80,000/-
Total Income of PAN2 = Rs. 2,25,000/-
To tax-payer with PAN3
1. TAN1 will pay Rs. 85,000/-
2. TAN2 will pay Rs. 90,000/-
3. TAN3 will pay Rs. 95,000/-
4. TAN4 Nil
Total Income of PAN3 = Rs. 2,70,000/-
On the IT Department’s portal, the tax-payers will type the TAN’s of the banks in which they have deposits as given below:
PAN1 will type the following TAN’s
1. TAN1
2. TAN3
3. TAN4
PAN2 will type the following TAN’s
1. TAN1
2. TAN2
3. TAN4
PAN3 will type the following TAN’s
1. TAN1
2. TAN2
3. TAN3
When the banks log into their accounts, they will find PAN’s of various tax-payers as shown below:
TAN1 will see the following PAN’s
1. PAN1
2. PAN2
3. PAN3
TAN2 will see the following PAN’s
1. PAN2
2. PAN3
TAN3 will see the following PAN’s
1. PAN1
2. PAN3
TAN4 will see the following PAN’s
1. PAN1
2. PAN2
Now, the banks will type following interest amounts against each tax-payer:
TAN1 will type the following amounts –
1. PAN1 will be paid Rs. 55,000/-
2. PAN2 will be paid Rs. 70,000/-
3. PAN3 will be paid Rs. 85,000/-
TAN2 will type the following amounts –
1. PAN2 will be paid Rs. 75,000/-
2. PAN3 will be paid Rs. 90,000/-
TAN3 will type the following amounts –
1. PAN1 will be paid Rs. 60,000/-
2. PAN3 will be paid Rs. 95,000/-
TAN4 will type the following amounts -
1. PAN1 will be paid Rs. 65,000/-
2. PAN2 will be paid Rs. 80,000/-
It is advised that the banks should fill the income data, not the tax-payers since tax-payers may not have full expertise in interest calculations and may, therefore, commit mistakes.
Now, the IT Deptt. will have the following data about each tax-payer:
PAN1 is getting following income from various banks –
1. From TAN1 Rs. 55,000/-
2. From TAN3 Rs. 60,000/-
3. From TAN4 Rs. 65,000/-
Total Income = Rs. 1,80,000/-
PAN2 is getting following income from various banks –
1. From TAN1 Rs. 70,000/-
2. From TAN2 Rs. 75,000/-
3. From TAN4 Rs. 80,000/-
Total Income = Rs. 2,25,000/-
PAN3 is getting following income from various banks –
1. From TAN1 Rs. 85,000/-
2. From TAN2 Rs. 90,000/-
3. From TAN3 Rs. 95,000/-
Total Income = Rs. 2,70,000/-
SUMMARY
If the above proposal is implemented, a tax-payer will have to do the following:
1. Type his Estimated Income for the Financial Year
2. Type TAN’s of all banks/NBFC’s to whom he wants to request not to deduct tax at source from his payments
Banks/NBFC’s will have to do the following:
1. Update their database not to deduct tax for PAN’s in the IT Deptt.’s database
2. Update IT Deptt.’s database from their database by copying payable income data for the above PAN’s
Both these steps will be done automatically by computer. No manual work involved.
IT Deptt. will have to tag PAN’s of tax-payers having faulty declarations which is also an automatic task done by computer.
REQUEST TO READERS
I request readers that if they have any acquaintance in the IT Deptt., kindly send the link of this article to them. Also send it to your co-workers, colleagues etc. Some of them may be knowing officials of the deptt.
I also request the readers to highlight any shortcomings, drawbacks, fallacies, infeasibility or inconsistency in the article. Please also comment if article is not sufficiently clear or is confusing.
Thanks.