How are Treasury Bills taxed in India?

The gain between purchase price and face value is always Short-Term Capital Gains taxed at your income tax slab rate — T-Bills mature in under a year, so they can never qualify for LTCG. There is no TDS, so if your total tax liability exceeds ₹10,000 you must pay advance tax in quarterly instalments. NRIs face 20% TDS (or the lower DTAA rate).

What is the difference between a Treasury Bill and a Government Bond?

T-Bills mature in under a year (91/182/364 days), are zero-coupon (return comes from the discount), and barely move in price. Government Bonds (G-Secs) mature in 5–40 years, pay a semi-annual coupon, and swing significantly with interest rates. T-Bills are for short-term parking; G-Secs are for long-term income and duration positioning.

How do I buy Treasury Bills in India?

The simplest route is RBI Retail Direct (rbiretaildirect.org.in): open a free account, add funds, and place a non-competitive bid from a ₹10,000 minimum — you accept the auction's weighted-average yield without guessing rates. Auctions are weekly (91-day) or fortnightly (182/364-day). Alternatively, buy through a demat/broker platform such as Zerodha Coin or ICICI Direct.

Conceptual · Article 2.1.4.1

Treasury Bills (T-Bills).

Q: Can I lose money investing in Treasury Bills?

If you hold to maturity you cannot lose principal — the Government of India repays full face value. But your real return after inflation and tax can be negative, and if you sell before maturity after rates have risen you may get less than you paid. For small retail sales (under ₹1 lakh) on RBI Retail Direct, wider bid-ask spreads can also reduce the price you realise.

Q: Are Treasury Bills better than fixed deposits?

Neither is universally better. T-Bills carry sovereign risk; FDs carry bank risk mitigated by DICGC insurance up to ₹5 lakh. T-Bills have no TDS but require proactive advance tax; FDs auto-deduct TDS. Yields are comparable — 364-day T-Bills ~5.6% versus 1-year bank FDs of 6.25–7%. Choose on issuer preference, liquidity, and tax-compliance comfort rather than on a blanket ranking.

India's Safest Place to Park Money for Under a Year.

Published as on 22 July 2026

A Treasury Bill is a short-term IOU from the Government of India — issued through the RBI in 91, 182 or 364-day tenures. You buy it at a discount and receive the full face value at maturity; the difference is your entire return. There is no coupon: a ₹1,00,000 bill bought for ₹98,500 pays back ₹1,00,000 in a year. As the shortest, safest rung of the government securities ladder, T-Bills carry minimal credit risk and almost no price volatility — but they are a capital-preservation tool, not a wealth engine. As of February 2026 the 364-day yields ~5.6%, about 35 bps over the 5.25% repo, and retail investors can buy from ₹10,000 on RBI Retail Direct.

Sovereign

Credit Backing

91–364 days

Tenure

~5.6%

364-Day Yield

Slab STCG

Tax · No TDS

Executive Summary · Page 2

Executive Summary · 6 Findings

A T-Bill is the government's working-capital loan — money it borrows for a few months to bridge the gap between when it spends and when taxes arrive. For an investor it answers one question: where do I keep money I will need within a year, with near-total safety of principal? The catch: "safe" means the principal, not the purchasing power. After tax and inflation, the real return can quietly turn negative.

Covers what a T-Bill is and why the government issues them, where they sit in the money-market layer of a portfolio, the four risks that survive the sovereign guarantee (reinvestment, inflation, secondary-market liquidity, opportunity), slab-rate STCG taxation and the advance-tax obligation, how to buy via RBI Retail Direct, T-Bills versus FDs and liquid funds, the ladder strategy, and seven questions Indian investors ask.

Key Findings

A zero-coupon loan to the government, under a year.

T-Bills are short-term securities issued by the Government of India through the RBI, in 91, 182 and 364-day tenures. They pay no interest — you buy at a discount and collect full face value at maturity. Pay ₹98,500 for a ₹1,00,000 bill, get ₹1,00,000 back; the ₹1,500 gap is your return. Auctioned weekly by the RBI.

The money-market layer — one step above cash.

In the portfolio hierarchy, T-Bills sit above a savings account but below short-term bonds and equity. Their job is the safe parking of funds needed within 12 months — next quarter's tax, a down payment six months out, a business liquidity reserve. Match the instrument's tenure to the goal's timeline.

"Low risk" is not "risk-free."

Credit risk is minimal and, at under a year, interest-rate risk is very low if held to maturity. But three risks survive: reinvestment risk (the next bill may yield less), inflation risk (a 5.6% yield loses to 6% inflation), and secondary-market liquidity risk (small odd-lots can face wide spreads). A sovereign guarantee protects your rupees, not their real value.

Always STCG at slab rate — and no TDS.

Because a T-Bill matures in under a year, its gain is always Short-Term Capital Gains, taxed at your slab rate — it can never qualify for LTCG. There is no TDS, so nothing is auto-deducted: if your total tax liability crosses ₹10,000 you must pay advance tax in quarterly instalments, or face interest under Sections 234B/234C. NRIs face 20% TDS.

Buy directly from ₹10,000 on RBI Retail Direct.

Open a free RBI Retail Direct account, add funds, and place a non-competitive bid — you specify only the amount (₹10,000 minimum) and accept the auction's weighted-average yield, without competing with institutions. Already have a demat account? Brokers like Zerodha Coin or ICICI Direct also offer T-Bills, usually at slightly higher cost.

A preservation tool — compare it to FDs and liquid funds.

Yields are broadly comparable to bank FDs (which currently pay a little more) and liquid funds. The right comparison is never "T-Bill vs equity" — it is T-Bill vs FD vs liquid fund. Direct T-Bills suit lump sums of ₹5 lakh+ held to maturity; liquid funds suit small, flexible amounts needing daily access. A ladder blends yield and liquidity.

At A Glance

Metric	Value	Detail
Issuer	Govt of India	Via the RBI
Tenures	91 / 182 / 364 days	Zero-coupon
Credit Risk	Minimal	Sovereign
Price Risk	Very low	Short tenure
Min Investment	₹10,000	RBI Retail Direct
364-Day Yield	~5.6%*	~35 bps over repo
Tax	Slab STCG	No TDS, advance tax
Best Use	Sub-12-month goals	Not wealth creation

Exhibit 01: After-Tax Reality of a 5.6% T-Bill

Bracket	After-Tax Yield	Real (vs 5%)
≤₹12L (rebate)	5.6%	+0.6%
15%	4.76%	−0.24%
20%	4.48%	−0.52%
30%	3.92%	−1.08%

*Indicative, auction-determined, February 2026. Real return assumes 5% inflation. A 30% bracket investor earns a negative real return — proof that T-Bills preserve capital rather than grow it. New-regime rebate makes income up to ₹12 lakh effectively tax-free.

The Opening · Page 3

The Opening

A Treasury Bill is the simplest instrument the government issues: a promise to repay a fixed sum on a fixed near date, sold today for less than that sum. There is no interest cheque, no coupon — the entire return is baked into the discount. Buy a 364-day bill of ₹1,00,000 for ₹95,000 and you collect ₹1,00,000 in a year; the ₹5,000 gap is the yield. The government uses these to bridge the timing gap between continuous spending and lumpy tax collection — its version of a working-capital loan.

"A T-Bill guarantees your rupees come back. It guarantees nothing about what those rupees will buy. At a 5.6% yield against 5% inflation and a 30% tax rate, the nominal number looks reassuring while the real return quietly turns negative."
Preservation, Not Growth

The mechanics. T-Bills are zero-coupon securities: return comes purely from buying below face value. Because they mature in under a year, there is little time for rates to move against you if you hold to maturity — interest-rate risk is very low. But sell early and you take the secondary-market price; roll the bill over year after year and your long-run return depends on the whole sequence of reinvestment yields, not just today's.

The February 2026 context. The RBI has cut the repo from 6.50% to 5.25% across the last two years, and the 364-day T-Bill yields ~5.6% — about 35 bps above repo. This late-cycle position matters: with rates likely near the bottom, an investor rolling bills over several years faces genuine reinvestment risk if the next auctions clear lower.

The Honest Boundary: T-Bills are NOT a wealth-creation vehicle — do not use them for a 10-year goal. They are NOT an inflation hedge — the yield can trail rising prices. They are NOT a source of monthly income — they pay nothing until maturity. They ARE the cleanest sovereign-safe home for money you will need within a year, provided you can manage the advance-tax obligation yourself.

Structure

Part I

What a T-Bill Is, Why It's Issued & Where It Fits

Part II

The Four Surviving Risks & Slab-Rate Taxation

Part III

How to Buy, vs FDs / Liquid Funds & the Ladder

Part IV

The Verdict: A Parking Bay, Used Correctly

Use If

✓ Goal is 3–12 months away

✓ Lump sum of ₹50,000+ (ideally ₹5L+)

✓ Capital safety over high returns

✓ Can manage advance tax yourself

Do NOT Use If

✕ Goal is beyond 3 years

✕ You need monthly income

✕ You want to beat inflation

✕ You may need instant liquidity

Part I

What a Treasury Bill Is, Why the Government Issues It, and Where It Fits

The zero-coupon mechanics of buying at a discount; how T-Bills solve the government's cash-flow timing problem; and where they belong in the money-market layer of a portfolio — above cash, below bonds, matched to sub-12-month goals.

Part I · Page 4

The Three Tenures

T-Bill	Tenure	Yield (Feb 2026)
91-day	~3 months	~5.3%
182-day	~6 months	~5.4%
364-day	~1 year	~5.6%

All three are auctioned by the RBI on the government's behalf — 91-day bills weekly, 182 and 364-day bills on alternate Wednesdays. Because they carry no coupon, the return is simply face value minus purchase price, annualised.

Why the Government Issues Them

Solving a Timing Mismatch

Tax collections arrive in lumps (quarterly advance tax); spending is continuous (salaries on the 1st, projects, welfare). Rather than hold idle cash or take long-term loans for temporary needs, the government borrows precisely what it needs for short periods. A T-Bill is the sovereign's working-capital line — efficient, and non-disruptive to the long-term bond market.

Where T-Bills Fit

Layer	Instrument	Role
Cash	Savings account	Instant access
Money market	T-Bills	Capital stability
Short bonds	1–3 yr	Moderate return
Long bonds	G-Secs 5–40 yr	Duration return
Equity	Stocks / funds	Long-term growth

T-Bills occupy the money-market layer: one rung above cash, safe parking for money needed within twelve months. The guiding principle is tenure-matching — a 91-day bill for next quarter's tax, a 364-day bill for a down payment a year out.

Appropriate uses: ₹5 lakh set aside for next quarter's advance tax; ₹10 lakh accumulating for a six-month-away down payment; a business liquidity reserve for vendor payments; bonus income parked while you decide on long-term allocation. Inappropriate: a 30-year-old's retirement corpus — that is an equity job, not a T-Bill one.

Part II

The Four Risks the Sovereign Guarantee Does Not Remove, and How You're Taxed

Why "government-backed" silences credit risk but not reinvestment, inflation, liquidity and opportunity risk; and why every rupee of T-Bill gain is Short-Term Capital Gains at your slab rate, with no TDS and a self-managed advance-tax duty.

Part II · Page 6

The Risks That Survive

Credit & Rate Risk — Low

Sovereign backing makes default minimal in rupee terms. And at under a year, held to maturity, rate moves barely touch you — your return is locked at purchase.

Reinvestment Risk — The Overlooked One

Invest ₹10 lakh in a 364-day bill at 5.6%. When it matures, if the RBI has cut, the next bill may yield 4.8%. Rolling bills over years, your effective return is the whole sequence of yields — not today's rate. Real, and sharpest late in a cutting cycle.

Inflation & Liquidity Risk

A 5.6% yield against 6% inflation is a negative real return — T-Bills preserve, not protect against inflation. And small odd-lot sales (under ₹1 lakh) on the retail secondary market can face wide bid-ask spreads; ₹5 lakh+ trades more smoothly.

Taxation (FY 2025-26)

Always STCG, Always Slab Rate

The gain (face value − purchase price) is Short-Term Capital Gains taxed at your slab rate — whether you hold two days or the full 364. A T-Bill can never be LTCG. Buy at ₹95,000, redeem at ₹1,00,000: the ₹5,000 gain is taxed at your bracket.

No TDS → Advance Tax Duty

Unlike FDs, T-Bills deduct no TDS — you receive the full amount. If your total annual tax liability exceeds ₹10,000, you must pay advance tax in four instalments (15 Jun / 15 Sep / 15 Dec / 15 Mar). Miss them and interest accrues under Sections 234B and 234C. NRIs face 20% TDS (or the lower DTAA rate).

T-Bill vs FD: Where Each Wins

Aspect	T-Bill	Bank FD
Issuer	Sovereign	Bank + DICGC ₹5L
Yield (1yr)	~5.6%	6.25–7.0%
Rate lock	At auction	Full tenure
Tax admin	Advance tax	TDS auto

Indicative Feb 2026. Both taxed at slab rate — T-Bills carry no structural tax advantage. FDs currently yield a little more; T-Bills win on sovereign safety beyond ₹5 lakh and on penalty-free (if spread-exposed) secondary liquidity.

Part III

How to Buy, T-Bills versus Liquid Funds, and the Ladder Strategy

The RBI Retail Direct route and non-competitive bidding; when a liquid fund's daily access beats a direct bill's zero expense ratio; and how a maturity ladder turns a lumpy instrument into a rolling source of yield and liquidity.

Part III · Page 8

Two Ways to Buy

Route	Cost	Best For
RBI Retail Direct	Free (₹5–10 gateway)	Most investors
Demat / Broker	AMC ₹300–750/yr	Existing demat users

Non-Competitive Bidding — Made Simple

On rbiretaildirect.org.in, open a free account (PAN, Aadhaar, video KYC, linked bank), add funds, and on auction day specify only the amount — ₹10,000 minimum, up to ₹2 crore per security. You accept the auction's weighted-average yield; no need to guess rates or compete with institutions. Settlement follows on Friday. Brokers like Zerodha Coin, ICICI Direct and HDFC Securities also list T-Bills, usually at slightly higher cost.

Direct T-Bill vs Liquid Fund

Feature	Direct	Liquid Fund
Expense	Zero	0.15–0.35%
Liquidity	To maturity	Daily
Min amount	₹10,000	₹500 SIP
Reinvest	Manual	Automatic

The T-Bill Ladder

Spread ₹10 Lakh Across Maturities

Rather than one 364-day bill, split it: ₹2.5L in a 91-day, ₹2.5L in a 182-day, ₹2.5L in a 364-day, and ₹2.5L in a liquid/overnight fund. As each bill matures, roll it into a new 364-day bill. Something is always coming due soon.

Why the Ladder Works

Benefit	How
Liquidity	A bill matures every few months
Reinvest risk	Only a slice re-prices at once
Yield	Roll shorts into higher-yield 364s
Timing	Averages yields over the cycle

The honest truth: the comparison that matters is never T-Bills versus equities — a helmet versus a racing car. It is T-Bills versus FDs versus liquid funds, all capital-preservation tools. Direct T-Bills suit ₹5 lakh+ held to a known date, where the zero expense ratio and locked yield count. Liquid funds suit small, flexible, daily-access money. Many investors hold both: a liquid-fund core for genuine emergencies, a T-Bill ladder for planned near-term expenses.

Part IV

The Verdict

Safety of principal. Not safety of purchasing power.

Part IV: The Verdict · Page 10

30-Second Summary

A Treasury Bill is a zero-coupon loan to the Government of India for 91, 182 or 364 days — bought at a discount, redeemed at face value, with minimal credit risk and almost no price volatility if held to maturity. As of February 2026 the 364-day yields ~5.6%, about 35 bps over the 5.25% repo. It is the money-market layer of a portfolio: safe parking for money needed within a year, not a wealth engine.

Every gain is Short-Term Capital Gains taxed at your slab rate — a T-Bill can never be LTCG — and with no TDS you must manage advance tax yourself. Buy from ₹10,000 on RBI Retail Direct via simple non-competitive bidding. Use T-Bills for sub-12-month goals with lump sums, ideally laddered; compare them to FDs and liquid funds, never to equity. Above all, remember the after-tax, after-inflation math: for a 30% bracket investor a 5.6% yield can mean a negative real return.

"The sovereign guarantee answers one question — will my rupees come back? Yes. It says nothing about the other — what will they buy? A T-Bill is the safest way to hold money you cannot afford to lose and will soon spend. It is one of the worst ways to try to grow money you have time to invest. Confusing the two is the only real mistake."
The Final Orientation

The Bottom Line: Use T-Bills as a parking bay for money needed in 3–12 months — sovereign-safe, predictable, and penalty-free at maturity. Prefer RBI Retail Direct for the zero expense ratio; ladder if deploying ₹10 lakh+; keep a liquid fund alongside for instant access. Set expectations to the after-tax yield, not the headline: at 30% tax and 5% inflation, a 5.6% bill loses real value, so never mistake it for a growth asset. And diarise your advance-tax dates — the absence of TDS is a convenience only if you handle the compliance. Verify current auction yields before bidding.

ADWIZR · July 2026

Decision Rules

Use Correctly As

✓ Parking for a 3–12 month goal

✓ Sovereign safety beyond ₹5L/bank

✓ A laddered short-term reserve

✓ Zero-cost hold-to-maturity money

Misuse Destroys Value

✕ Long-term / retirement corpus

✕ Monthly-income requirement

✕ Inflation-beating expectation

✕ Money you may need instantly

Three Misconceptions

What Investors Get Wrong

(1) "Government guarantee means no risk." Credit risk is minimal, but reinvestment, inflation and opportunity risks remain. (2) "5.6% is what I earn." After 30% tax it is 3.92%; after 5% inflation, negative. (3) "I can always sell instantly at fair value." Small retail odd-lots can face wide secondary-market spreads.

vs Government Bonds

Short & Flat vs Long & Volatile

T-Bills: under a year, zero-coupon, barely move in price — for parking. G-Secs: 5–40 years, semi-annual coupon, swing with rates — for income and duration positioning. Different tools for different jobs.

≤1 yr

Tenure

91 / 182 / 364 days

~5.6%

364-day yield

~35 bps over repo

Slab

STCG tax

No TDS, advance tax

Investor FAQ

Questions Indian Investors Ask

Seven questions, answered directly.

Investor FAQ · Page 12

Frequently Asked Questions

Q1 Can I lose money investing in Treasury Bills?

Hold to maturity and you cannot lose principal — the government pays full face value. But your real return, after inflation and tax, can be negative, and if you sell before maturity after rates have risen you may get less than you paid. For small retail sales (under ₹1 lakh) on RBI Retail Direct, wider bid-ask spreads can further reduce the price you realise versus the theoretical fair value.

Q2 Are Treasury Bills better than fixed deposits?

Neither is universally better. T-Bills carry sovereign credit risk; FDs carry bank risk mitigated by DICGC insurance up to ₹5 lakh. T-Bills have no TDS but need proactive advance tax; FDs auto-deduct TDS. Yields are comparable — 364-day T-Bills ~5.6%, PSU bank FDs 6.25–6.75%, private banks 6.5–7%. Choose on issuer preference, liquidity needs, tax-compliance comfort and the value you place on relationship banking.

Q3 What's the difference between a T-Bill and a Government Bond?

Tenure: T-Bills mature in under a year (91/182/364 days); G-Secs in 5–40 years. Structure: T-Bills are zero-coupon (return from the discount); G-Secs pay a semi-annual coupon. Volatility: T-Bill prices barely move; G-Sec prices swing significantly with rates. Use: T-Bills for short-term parking, G-Secs for long-term income and duration positioning.

Q4 How do I know what yield I'll get before the auction?

The RBI publishes indicative yields from previous auctions, but the actual rate depends on that auction's demand and supply. In non-competitive bidding you don't specify a rate — you accept whatever weighted-average yield emerges. Currently the 364-day trades around 5.6%, roughly 35 basis points above the 5.25% repo rate. You will see your exact purchase price and maturity value in the confirmation.

Q5 Can I invest in T-Bills through a SIP?

Not in T-Bills directly, but you can SIP into money-market or liquid funds, which hold T-Bills alongside commercial paper and certificates of deposit. That gives indirect T-Bill exposure with daily liquidity and small amounts, sidestepping the ₹10,000 minimum and the secondary-market liquidity constraints of direct bills. It is the practical route for gradual, monthly accumulation.

Q6 What happens if I need money before my T-Bill matures?

You have two options. Sell in the secondary market (via RBI Retail Direct or your demat account) at the current market price, which may be a little above or below your cost depending on rate moves — and for small amounts, be ready for wider spreads or place a limit order and wait. Or leave the bill to mature and meet the need from other liquid sources. Unlike an FD there is no "premature withdrawal with penalty" — you either sell at market or hold on.

Q7 Are T-Bill returns guaranteed?

The face-value repayment is guaranteed by the Government of India (subject only to minimal sovereign risk in rupee terms). But your effective yield depends on the discount you bought at, and your after-tax return on your bracket. Sell early and the price is subject to market conditions and liquidity. And if you roll bills over several years, your long-run return depends on the reinvestment yields at each maturity, which move with RBI policy.

Key Terms & Definitions

Treasury Bill (T-Bill)

A short-term debt instrument issued by the Government of India through the RBI, in 91, 182 or 364-day tenures. It pays no coupon: you buy at a discount to face value and receive full face value at maturity, the difference being your return. The safest sub-one-year rupee instrument.

Zero-Coupon Security

A security that pays no periodic interest. The entire return comes from buying below face value and being repaid the full face value at maturity. T-Bills are the classic example — there is no coupon cheque, only the built-in discount.

Discount Yield

The annualised return implied by the gap between purchase price and face value. Pay ₹98,500 for a ₹1,00,000 bill maturing in a year and the ~₹1,500 gain represents roughly a 1.5% return over the period, annualised to the quoted yield.

Reinvestment Risk

The risk that, when a T-Bill matures, the next one you buy yields less because market rates have fallen. For investors rolling bills over multiple years, the long-run return depends on the whole sequence of reinvestment yields — most acute late in a rate-cutting cycle.

Non-Competitive Bidding

The simplified retail auction route on RBI Retail Direct: you specify only the amount you want to invest and accept the weighted-average yield the auction produces, without quoting a rate or competing with institutional bidders.

Advance Tax

Because T-Bills deduct no TDS, an investor whose total annual tax liability exceeds ₹10,000 must pay tax in four quarterly instalments (15 Jun / 15 Sep / 15 Dec / 15 Mar). Missing these triggers interest under Sections 234B and 234C.