Treasury Bills Auction Sep 2026: Income Tax Guide for Indian Investors

What Happened?

The Reserve Bank of India has announced an auction of Government of India Treasury Bills totalling ₹24,000 crore. The auction includes 91-day, 182-day, and 364-day Treasury Bills, scheduled for September 23, 2026 (auction date) with settlement on September 24, 2026. Individual retail investors can now participate directly through the non-competitive bidding route, with allocation restricted to a maximum of 5% of the notified amount per category. Bids must be submitted electronically through the RBI's Core Banking Solution system during specified timings on the auction date.

Background & Legal Context

Treasury Bills are short-term government securities issued by the RBI on behalf of the Government of India. From an income tax perspective, the interest earned on Treasury Bills is treated as income under specific sections of the Income Tax Act 2025.

• Section 112 of Income Tax Act 2025: Interest income from government securities (including T-Bills) is taxable as income from other sources. The interest is calculated as the difference between the face value (redemption value) and the purchase price.
• Section 194A of Income Tax Act 2025: If you hold T-Bills in a bank account, Tax Collected at Source (TCS) may be applicable when interest is credited, depending on your account type and total income. Banks are required to collect TCS at the prescribed rate on interest income for individuals.
• Section 80TTA of Income Tax Act 2025: Individual taxpayers (both resident and non-resident) can claim a deduction of up to ₹10,000 for interest earned on savings accounts and deposits in scheduled banks. However, interest from government securities like T-Bills does NOT qualify for this deduction, as T-Bills are not bank deposits.
• Section 115BAA (old Section 115BAC) of Income Tax Act 2025: If you opt for the new tax regime, the interest from T-Bills will be taxed at the applicable slab rates without any surcharge or cess, depending on your income bracket.
• GST Implication: No Goods and Services Tax applies to the purchase or interest income from Treasury Bills, as they are financial securities outside the GST scope.

The assessment year for this investment will be AY 2026-27 (financial year 2025-26) or AY 2027-28 (financial year 2026-27), depending on when you purchase and when interest is earned.

What Does This Mean for You?

For Individual Retail Investors:

• Tax on Interest Earned: When you invest in Treasury Bills through this auction, the interest you earn will be taxable as income from other sources in the assessment year in which it is credited to your account. For 91-day T-Bills, interest will be earned within AY 2026-27 itself. For 182-day and 364-day T-Bills, the interest will be taxed in the subsequent financial year when credited.
• Computation of Income: Your taxable income from T-Bills = Face Value – Purchase Price. For example, if you purchase a 91-day T-Bill at ₹99,750 and redeem it at ₹100,000, the interest income of ₹250 is taxable.
• Tax Collected at Source (TCS): When the interest is credited to your bank account, the bank will deduct TCS as per applicable rates. This TCS will be allowed as a credit against your total tax liability. The effective rate depends on whether you have filed a tax return in the preceding year.
• Investment Limit: As a retail investor, your maximum allocation in this auction is 5% of the notified amount for each category. This means you can invest up to ₹450 crore in 91-day T-Bills, ₹400 crore in 182-day T-Bills, and ₹350 crore in 364-day T-Bills. However, in practice, individual investment is typically much smaller.
• No Capital Gains Tax: Since Treasury Bills are issued at a discount and redeemed at face value, there is no capital gains tax. The entire difference is treated as interest income taxed under Section 112.
• For Senior Citizens: If you are a senior citizen (age 60+), you may benefit from lower tax rates under Section 115ABHD (special rate for senior citizens' interest income from specific deposits). However, check if T-Bills qualify under current rules, as this section primarily applies to bank deposits and fixed deposits.

For Non-Resident Indian (NRI) Investors:

• NRIs can invest in T-Bills through the non-competitive route. The interest earned is taxed as Foreign Income under Section 5(1) of the Income Tax Act 2025. However, since the T-Bills are issued by the Government of India and redeemed in India, this is unlikely to trigger FEMA restrictions, provided the investment is made through authorized channels.
• TCS will still apply when interest is credited.

For HUF (Hindu Undivided Family) Members:

• HUF members who invest in T-Bills through individual capacity must report the interest as HUF income, subject to HUF taxation rules. HUF is a separate taxable entity under Section 2(31) of the Income Tax Act 2025.

What Should You Do Now?

Step 1: Verify Your Eligibility

Ensure you are eligible to participate as a retail investor. You must have a valid bank account and PAN (Permanent Account Number). Your PAN should be linked to your Aadhaar for smooth processing.

Step 2: Calculate Your Expected Interest Income

Based on the likely yield (which will be known on auction day), compute the interest you will earn. This helps you estimate your tax liability for AY 2026-27 or AY 2027-28.

Step 3: Register on the Retail Direct Portal

If you wish to bid during the auction, create an account on the Retail Direct portal and complete KYC verification. Ensure all details are accurate to avoid delays.

Step 4: Plan Your TCS Credit

Understand the TCS rate applicable to your income bracket. Request Form 15H from your bank if you expect no tax liability, to avoid TCS deduction. However, this is typically available for individuals whose total income is below the taxable threshold.

Step 5: Maintain Records for Income Tax Compliance

• Keep the auction confirmation slip and allotment details.
• Retain the redemption statement when T-Bills mature.
• Maintain bank statements showing interest credit and TCS deducted.
• Prepare Schedule 115 (Income from Other Sources) for your ITR filing in the relevant assessment year.

Step 6: File Your ITR on Time

Report the interest income in your Income Tax Return for the assessment year in which it is earned. Delay in filing ITR can attract penalties and reduce TCS credit utilization.

Key Takeaways

• Interest from Treasury Bills is fully taxable as income from other sources under Section 112 of Income Tax Act 2025, with no capital gains tax applicable.
• Tax Collected at Source (TCS) will be deducted by your bank when interest is credited; this can be claimed as a credit in your ITR filing for AY 2026-27 or AY 2027-28.
• Individual retail investors can allocate maximum 5% of notified amount per T-Bill category, providing a safe government investment option for tax planning.
• Interest income from T-Bills does NOT qualify for deduction under Section 80TTA, unlike bank deposit interest, so plan your deductions accordingly.
• Maintain complete documentation of purchase, interest credit, and TCS deduction for smooth ITR filing and future audit defense.

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