Treasury Bills India 2026: Tax Treatment & Investment Guide

What Happened?

The Reserve Bank of India successfully concluded its Treasury Bills auction on 2 September 2026 across three maturity buckets. The 91-day T-Bills attracted highest demand with ₹29,550.36 crore in competitive bids against a notified amount of ₹9,000 crore, yielding 5.2599%. The 182-day and 364-day T-Bills also recorded strong participation with weighted average yields of 5.6189% and 5.8887% respectively. This auction is significant for individual and corporate investors seeking tax-efficient fixed-income investment options under current Indian tax laws.

Background & Legal Context

Treasury Bills are short-term debt instruments issued by the Government of India through the Reserve Bank of India. They are sold at a discount to face value, and the difference constitutes the investor's income. Under the Income Tax Act 2025, the tax treatment of T-Bill investments involves several key provisions:

• Section 194A (TDS on Savings Bank Interest): While primarily for bank interest, this section's principles guide how interest income is computed on government securities. However, T-Bills follow specific rules under Section 56(2) for other income.
• Section 56 (Income from Other Sources): The discount at which T-Bills are purchased and subsequently sold or redeemed generates capital gains or interest income. If purchased at discount and held till maturity, the difference is taxed as income from other sources under Section 56(2).
• Section 112A (LTCG on Listed Securities): If a T-Bill is sold before maturity at a price higher than acquisition cost, it may qualify for capital gains treatment. If held for more than 12 months, it attracts long-term capital gains taxation.
• Section 55 (Cost of Acquisition): For T-Bills, the cost of acquisition is the purchase price (discounted price), not the face value. This is crucial for computing capital gains correctly.
• Section 87A (Rebate for Indian Residents): Individual investors with total income below specified thresholds can claim rebate under Section 87A, applicable to T-Bill income as well.

Additionally, under the old Income Tax Act 1961 (still applicable for certain transitional provisions), Section 10(38) exempted income from securities listed on stock exchange, but this has been substantially modified under the Income Tax Act 2025 framework.

For Assessment Year 2026-27: All T-Bills purchased in FY 2025-26 (April 2025 to March 2026) with maturity extending beyond 31 March 2026 will have their income taxed in the year of receipt or maturity, whichever is earlier.

What Does This Mean for You?

For Individual Investors:

Income Computation: If you subscribe to Treasury Bills from this auction, the yield you receive (5.2599% for 91-day, 5.6189% for 182-day, 5.8887% for 364-day) represents your taxable income. However, since T-Bills are discount instruments, the tax is calculated on the discount amount, not on any separate interest payment.

Example: You invest ₹98.71 per ₹100 face value in 91-day T-Bills. At maturity, you receive ₹100. The ₹1.29 gain is your taxable income in the year of receipt, taxed as income from other sources at your applicable slab rate (0%, 5%, 20%, or 30% under IT Act 2025).

No TDS on T-Bills: Importantly, the Reserve Bank does not deduct Tax Deducted at Source (TDS) on Treasury Bills. You are responsible for self-assessment and payment of tax through quarterly instalments (ES) if your total income exceeds the threshold. For AY 2026-27, if your estimated tax liability exceeds ₹10,000, you must pay Advance Tax in quarterly instalments.

Exemption for Senior Citizens: If you are above 60 years and your total income is below the basic exemption limit (₹5 lakhs for AY 2026-27), you are not liable to file income tax return. However, you must still track and report T-Bill income if total income exceeds basic exemption.

For Corporate Investors:

Addition to Profit & Loss Account: Corporate bodies must recognize T-Bill discount income as finance income. It is taxed as business income at the applicable corporate tax rate. The new IT Act 2025 maintains the corporate tax rate structure, with options for 15% with prescribed conditions or 30% for standard cases.

Schedule VI Classification: Under accounting standards, T-Bills are classified as financial assets held at amortized cost. The discount must be amortized over the holding period.

Book vs. Tax Income: If book income differs from taxable income due to T-Bill accounting, Section 115BAC adjustment may apply. Corporates should maintain detailed records of purchase date, cost, maturity date, and redemption proceeds.

For NRI/HUF/Partnership Investors:

Resident Status Implications: NRIs can invest in T-Bills only subject to Liberalized Remittance Scheme (LRS) or through NRE accounts. Income earned is taxed under the same provisions but may be subject to higher TDS requirements if routed through banks.

HUF & Partnership: HUF's T-Bill income is taxed separately at individual slab rates. Partnership firm's share of T-Bill income is added to firm's total income and taxed at firm level; partners' share is then taxed at individual level with credit for firm-level tax.

What Should You Do Now?

• Review Investment Strategy: If you participated in this T-Bill auction, immediately record the purchase price, maturity date, and expected yield. Ensure your books reflect discount vs. face value correctly.
• Calculate Advance Tax Liability: For AY 2026-27, add your T-Bill income estimate to other income sources. If total income is above basic exemption and tax liability exceeds ₹10,000, file Form ES and pay quarterly instalments by 15 June 2025, 15 September 2025, 15 December 2025, and 15 March 2026.
• Maintain TDS Compliance: Although no TDS is deducted by RBI, if you deposit T-Bill funds in savings bank, interest on that deposit is subject to TDS under Section 194A (above ₹40,000 annual interest). Claim credit in ITR.
• File ITR on Time: For AY 2026-27, file Form ITR-1 (individuals), ITR-3 (HUF), ITR-4 (proprietorship), or ITR-5 (partnership) by 31 July 2025, disclosing T-Bill income under Schedule OI (Other Income). Corporate entities must file ITR-6 by the same date.
• Track Secondary Market Transactions: If you sell T-Bills before maturity, capital gains/loss must be computed. Obtain broker statement showing purchase price, sale price, and holding period. If held >12 months, capital gains tax rate is 20%; <12 months is short-term (slab rate).
• Reconcile with RBI Data: Cross-check your investment records with RBI's Integrated Debt Market Platform (iDMP) or your broker's statement. Any discrepancy must be corrected before filing ITR to avoid Assessing Officer queries.

Key Takeaways

• T-Bill income is taxed as "Other Income" under Section 56, not as interest: The discount realized is your taxable income, subject to your slab rate (0%, 5%, 20%, 30%) for individuals under IT Act 2025.
• No TDS deduction by RBI, but you must pay self-assessed tax quarterly: Estimate your T-Bill income and pay Advance Tax if liability exceeds ₹10,000 in quarterly instalments during FY 2025-26.
• Capital gains rules apply to secondary market sales: If you sell T-Bills before maturity, compute capital gains (sale price minus cost) and classify as LTCG (20% rate, >12 months) or STCG (slab rate, ≤12 months).
• Corporate investors must amortize discount in P&L and reconcile with tax provisions: Use Section 115BAC if applicable to determine whether standard 30% rate or conditional 15% rate applies to T-Bill income.
• NRIs, HUFs, and partnerships have special compliance rules: NRIs taxed separately under residential status rules; HUF income taxed at individual slabs; partnership firm taxes separately from partner-level taxation.

Compliance Reminder for AY 2026-27: The Income Tax Act 2025 has introduced stricter documentation requirements. Maintain all T-Bill acquisition and redemption documents for 6 years. If your T-Bill investment exceeds ₹5 lakhs in any financial year, report it in Schedule BAS (Bank, Aircraft, and Safe Deposit) of your ITR. Non-disclosure invites penalties under Section 271(1)(c) (up to ₹25,000).

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