Treasury Bills Tax Treatment 2026 - Income Tax on 91/182/364 Day T-Bills

What Happened?

In September 2026, the RBI conducted regular auctions of 91-day, 182-day, and 364-day Treasury Bills. These short-term government securities are popular among individual investors, corporates, and financial institutions for parking short-term funds at safe, government-backed returns. Understanding the tax treatment of income earned from T-Bills is critical for proper tax filing in AY 2026-27, as many taxpayers wrongly assume T-Bills carry no tax liability.

Background & Legal Context

Treasury Bills are zero-coupon government securities issued at a discount and redeemed at face value on maturity. The difference between purchase price and face value represents the income earned by the investor.

Applicable Sections Under Income Tax Act 2025:

• Section 194A (TDS on Interest): While T-Bill income is technically "capital gains" in nature, the tax framework treats interest-like returns specially. TDS under Section 194A is NOT applicable to T-Bills because they do not carry explicit interest payments.
• Section 55 (Cost of Acquisition): Under Income Tax Act 2025, the cost of acquisition of a T-Bill is the purchase price (discounted amount), not the face value.
• Section 48 (Capital Gains): The gain earned from T-Bills is treated as short-term capital gain (STCG) because T-Bills have a holding period of less than 365 days.
• Section 111A & 112: Short-term capital gains from T-Bills are taxed at slab rates applicable to the taxpayer (not at concessional rates like long-term capital gains).
• Section 139(1) & Schedule Form ITR-2: Individual investors must report T-Bill gains in their ITR filing under the schedule for capital gains.

GST Impact: No GST applies on the purchase or sale of T-Bills, as they are financial instruments and exempt from GST under the exemption for securities.

What Does This Mean for You?

For Individual Investors:

• Tax on T-Bill Income: If you purchased a 91-day T-Bill at ₹98,000 and redeemed it at ₹100,000 on maturity, your taxable gain is ₹2,000. This is treated as short-term capital gain and added to your total income, taxed at your applicable slab rate (10%, 20%, 30%, or 37% depending on your income).
• No TDS Deducted: Unlike bank fixed deposits (where TDS applies under Section 194A), T-Bills do NOT have TDS deducted by the RBI or bank. You receive the full maturity amount. However, you must declare this gain in your ITR.
• Filing Requirement: For AY 2026-27, if your T-Bill gains exceed ₹2,500 (or your overall income exceeds the basic exemption limit), filing an ITR is mandatory.
• Loss Adjustment: If you sell T-Bills at a loss before maturity (due to interest rate changes), you can claim the loss against other capital gains or carry it forward for 8 years.

For Corporate Investors:

• T-Bill gains are treated as business income if held as inventory/trading stock or capital gains if held as investment.
• Eligible companies may benefit from Sections 80IA or 80IB exemptions if they fall under specific business categories (e.g., infrastructure companies), though this depends on the nature of their primary business, not T-Bill investments.
• Companies must disclose T-Bill holdings and gains in Schedule 9 (Investments) of Form ITR-6 for AY 2026-27.

For Banks & Financial Institutions:

• Banks holding T-Bills as part of their Held-to-Maturity (HTM) portfolio account for gains differently than those in Available-for-Sale (AFS) portfolio.
• For tax purposes, gains on T-Bills are taxed as per the general capital gains rules, but banks may benefit from specific provisions under banking regulations.

What Should You Do Now?

Step 1: Calculate Your T-Bill Gains

• Gather purchase confirmations for all T-Bills purchased in FY 2025-26 (AY 2026-27).
• Record the purchase price (discounted amount), not the face value.
• On maturity or sale, calculate the gain: Maturity/Sale Price − Purchase Price.

Step 2: Determine Your Tax Liability

• For 91-day and 182-day T-Bills (held for less than 365 days): Treat gains as short-term capital gain.
• For 364-day T-Bills: Also treated as short-term capital gain (since holding period is 364 days, which is less than 365 days).
• Add T-Bill gains to your total income and apply your marginal tax rate.
• Example: If you earn ₹5 lakh in salary and ₹50,000 in T-Bill gains, your taxable income is ₹5.5 lakh. Tax calculated at slab rates applicable in AY 2026-27.

Step 3: Maintain Proper Documentation

• Keep RBI auction allotment letters, purchase confirmations, and maturity/redemption statements.
• Maintain a register showing:
• • Date of purchase
  • Quantity and type of T-Bill (91/182/364 day)
  • Purchase price
  • Maturity/Sale date
  • Maturity/Sale price
  • Gain/(Loss)

Step 4: File Your ITR Correctly

• Individual Investors: Use Form ITR-2 (applicable for individuals with capital gains). Report T-Bill gains under Part B-TCS (Capital Gains).
• Corporates: Use Form ITR-6, Schedule 9 (Investments).
• Report on a deed-wise basis if you held multiple T-Bills with varying purchase and sale dates.
• Do NOT ignore small gains; even ₹1,000 in T-Bill income must be reported if your total income exceeds the basic exemption limit.

Step 5: Be Aware of Interest Rate Risk

• If you sell T-Bills before maturity in the secondary market, the selling price will depend on prevailing interest rates. If rates have risen since purchase, you may incur a capital loss. You can use this loss to offset other gains or carry it forward for 8 years.

Key Takeaways

• T-Bills Generate Taxable Income: The discount gain (difference between purchase price and face value/redemption price) is taxed as short-term capital gain, NOT as interest income.
• No TDS on T-Bills: Unlike FDs, no TDS is deducted on T-Bill income. You must proactively declare gains in your ITR for AY 2026-27.
• Short-Term Gains Taxed at Slab Rates: All 91-day, 182-day, and 364-day T-Bill gains are short-term capital gains (holding period < 365 days) and taxed at your marginal tax rate, which can be as high as 37% for high earners.
• Proper Documentation is Critical: Keep detailed records of purchases, sales, and maturity details. Use these in your ITR filing and maintain for 6 years for potential tax notices.
• Capital Losses are Deductible: If you sell T-Bills at a loss in the secondary market, claim the loss against other capital gains. Unabsorbed losses can be carried forward for 8 years under Section 74 of the Income Tax Act 2025.

Important Note for AY 2026-27: With the new Income Tax Act 2025 framework in place, ensure your CA or tax advisor correctly classifies T-Bill gains in your ITR. Misclassification as "interest" or "dividend" can lead to penalties and income additions during assessment.

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