The teacher said, “Don’t come to school on Monday because it is a holiday.”

The correct form of the reported speech is option (D). When it’s clear who is speaking to whom, the use of “told” is preferable. The teacher told the students not to do something. The use of “is” in the sentence was spoken on Sunday. But if the sentence is looked at today, “is” sounds a bit improper because others don’t know when the direct speech sentence was spoken: this year, last year or the year before last year?; there’s  no knowing when. So the use of past tense of “is” would have been better.