You are currently viewing Understanding Treasury Bills: Returns and Tax Implications

Understanding Treasury Bills: Returns and Tax Implications

  • Post author:
  • Post published:October 7, 2023
  • Post category:General


Treasury Bills, often called T-Bills, are a popular investment choice for individuals and institutions due to their low-risk nature and government backing. By the end of this article, you will have a thorough understanding of Treasury Bills, enabling you to make informed financial decisions.

What are Treasury Bills?

Treasury Bills are short-term debt securities issued by the government to raise funds. They are typically issued with maturities of 91 days, 182 days, and 364 days. T-Bills are considered one of the safest investments as the full faith and credit of the government backs them. Investors purchase these bills at a discount to their face value and receive the face value upon maturity, effectively earning the difference as their return.

Calculating Treasury Bill Returns

The formula for Calculating T-Bill Returns

To calculate the return on a Treasury Bill, you can use the following formula:

Return = (Face Value – Purchase Price) / Purchase Price

This formula considers the purchase price (the amount you pay for the T-Bill) and the face value (the amount you receive at maturity). The difference between the two represents your return on investment.

Example Calculation

Suppose you purchase a 91-day T-Bill with a face value of $10,000 for $9,950. Using the formula:

Return = ($10,000 – $9,950) / $9,950 = 0.005025

In this case, your return is approximately 0.5025% or 50.25 basis points.

Taxation of Treasury Bill Returns

Taxation on Interest Income

The interest income earned from Treasury Bills is subject to taxation at the federal level. However, it is exempt from state and local taxes. The interest income is added to your taxable income for the year it matures. It’s important to note that you must pay taxes on the interest income, even if you reinvest it in another T-Bill.

Reporting Taxable Income

To report your taxable income from Treasury Bills, you will receive a Form 1099-INT from the financial institution where you hold the T-Bill. This form outlines the interest income you must report on your federal tax return. Ensure you accurately report this income to avoid penalties or legal issues.

How to Participate in Treasury Bill Investments through RBI Retail Direct?

You can easily purchase Treasury bills (T-bills) through the RBI’s dedicated bond platform designed for retail investors known as ‘RBI Retail Direct.’ All you need to do is follow these simple steps:

  1. Account Setup: Open an account on the RBI Retail Direct platform. Ensure you complete your KYC (Know Your Customer) requirements and provide your banking details to start.
  2. Auction Schedule: Before investing in T-bills, it’s important to be aware of the auction schedule. T-bill auctions typically occur weekly or fortnightly, commencing on Friday night and concluding by Tuesday night.
  3. Minimum Investment: Retail individuals must invest a minimum amount of Rs 10,000 in T-bills.
  4. Bidding Process: After logging into the RBI Retail Direct portal, you can access the bidding screen. Here, you have the opportunity to place bids for T-bills and other government bonds.
  5. Allotment: If the RBI accepts the bids you submitted during the T-bill auction, you will be allotted the requested T-bills. The RBI will send SMS and email notifications to inform you of the allotment status.
  6. Checking Allotment: You can check your investment holdings ledger to confirm whether you have successfully received the T-bills.

Investing in Treasury bills through RBI Retail Direct is a straightforward process that allows retail investors to conveniently participate in government debt securities.

Advantages of Treasury Bills

Investors are drawn to Treasury Bills for several reasons:

  1. Safety: T-Bills are considered one of the safest investments globally due to government backing.
  2. Liquidity: They can be easily bought and sold in the secondary market, ensuring liquidity.
  3. Predictable Returns: The return on T-Bills is known in advance, providing predictability for investors.

Risks and Considerations

While Treasury Bills are low-risk investments, it’s essential to consider the following factors:

  1. Low Yields: T-Bills offer lower returns than riskier investments like stocks or corporate bonds.
  2. Inflation Risk: The returns on T-Bills may not always keep pace with inflation, potentially eroding purchasing power.


In this comprehensive guide, we’ve explored the world of Treasury Bills, covering how returns are calculated and the tax implications investors need to know. Understanding these critical aspects makes you better equipped to make informed investment decisions when considering Treasury Bills. For personalized financial advice, consult a certified financial advisor to align your investment strategy with your financial goals.


I'm a professional content creator passionate about writing. My articles span law, business, finance, investments, and government schemes, always simplifying complex topics. Exploring and embracing novelty are my off-duty joys.