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Investment Knowledge / Fixed Income / Treasury Bills
Fixed income guide · tax reviewed 7 September 2026

Treasury Bills

91-, 182- and 364-day Government of India zero-coupon securities issued at a discount.

Return: Discount to face valueRisk: Very low default riskLiquidity: Short maturity; can also trade
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What it is

Treasury Bills are short-term Government of India securities. RBI states that they are issued in 91-day, 182-day and 364-day tenors, carry no coupon, are issued below face value and are redeemed at face value.

IssuerGovernment of India
Tenures91 / 182 / 364 days
CouponNone — issued at discount
MaturityRedeemed at face value

What can go wrong

  • Default risk is very low because the issuer is the Government of India.
  • If sold in the secondary market before maturity, price can move with yields and liquidity.
  • The annualised yield is not the same as the simple rupee discount; compare on a consistent yield basis.

Tax in India

  • T-Bills do not pay a coupon; the investor earns the difference between purchase price and sale/redemption value.
  • The taxable head can depend on the facts and reporting position, but for typical short-horizon individual investing the economic return is generally taxable and commonly ends up at applicable slab rates.
  • Because T-Bill tax reporting can be fact-specific, confirm your ITR treatment where amounts are material.

What the example below measures

The example below focuses on the tax increase caused by this instrument’s return for people starting with ₹6 lakh, ₹12 lakh or ₹50 lakh of normal taxable income. It does not treat TDS as final tax.

T-Bill tax: what happens to a ₹6L, ₹12L or ₹50L income person?

This is an instrument-specific illustration, not the same generic tax chart repeated on every page.

FY 2026-27 · Default new regime
Example used on this page: Assume ₹5,00,000 invested for roughly one year in a 364-day T-Bill at an illustrative 6.5% annualised return → about ₹32,500 economic return. Existing income below means normal taxable income before this investment return is added. Assumes a resident individual, no special-rate income, and includes 4% Health & Education Cess.
Existing taxable income before T-Bill return

₹6,00,000

After adding return: ₹6,32,500
Increase in annual tax: ≈ ₹0

Income becomes ₹6,32,500. Because normal-rate total income is still within ₹12 lakh, the available resident-individual rebate can keep final tax at nil in this simplified example.

Existing taxable income before T-Bill return

₹12,00,000

After adding return: ₹12,32,500
Increase in annual tax: ≈ ₹33,800

Income becomes ₹12,32,500. ₹12 lakh is exactly the rebate cut-off. Marginal relief limits the sudden tax jump; 4% cess is then added. This is a threshold effect, not a normal 104% tax rate.

Existing taxable income before T-Bill return

₹50,00,000

After adding return: ₹50,32,500
Increase in annual tax: ≈ ₹33,800

Income becomes ₹50,32,500. ₹50 lakh is exactly the surcharge threshold. Marginal relief reduces the surcharge jump just above ₹50 lakh; 4% cess is then added.

Why the ₹12L and ₹50L examples can look surprising: both people start exactly on a tax boundary before the T-Bill return is added. At ₹12 lakh, the 87A rebate boundary is crossed; at ₹50 lakh, the surcharge boundary is crossed. Marginal relief softens each jump, but 4% cess still applies. A person whose total income is comfortably inside a slab will normally see a much more familiar marginal tax effect. These cards are designed around your exact “₹6L / ₹12L / ₹50L income person then invests” question.
T-Bills pay no coupon. The return is the purchase-price-to-redemption/sale difference. The income head can be fact-specific, but for a typical individual’s short-horizon T-Bill gain the rate generally ends up at the applicable slab rate; the illustration therefore uses slab-rate taxation.

Tax & bond words — explained simply

No jargon without meaning. These are the terms used on this T-Bill page.

Zero couponA T-Bill does not pay periodic interest. It is issued below face value and redeemed at face value.
Face valueThe amount the Government pays at maturity.
DiscountThe gap between face value and the lower purchase price. That gap is the investor’s return if held to maturity.
Annualised yieldA way to express a short-period return as an approximate yearly rate so different tenures can be compared.
STCGShort-Term Capital Gain. Because T-Bills mature within one year, a gain is typically short-term where reported under capital gains; current tax rate is the applicable slab rate for such short-term gain.
TDSTax deducted before payment. Retail T-Bill redemption itself generally does not operate like a bank FD interest-TDS deduction; final reporting still depends on your tax return.

Official references

Use the current issuer document and current law before investing. These links are starting points for verification.

RBI — Government Securities FAQs↗Income Tax Department — current tax law↗

Educational illustration, not tax or investment advice. Tax depends on residential status, tax regime, age, deductions, special-rate income, acquisition price, holding period, listing status and changes in law. “Fixed income” does not mean every instrument is guaranteed or liquid.

Compare return after tax, not only the headline rate.

Underpitch can help you compare tenure, credit quality, liquidity and post-tax yield before you invest.

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