Treasury Bills: Features, Types, Benefits and Taxation
Why in the news
India again rolled over a $50 million Treasury Bill for the Maldives, which faces heavy public debt, a widening fiscal deficit and large debt repayments in 2025 and 2026.
Support to the Maldives
- The practice of rolling over the T-Bill started in 2019.
- In 2023, RBI gave a $400 million currency swap plus a ₹30 billion rupee swap to ease its forex and balance-of-payments strain.
About Treasury Bills
- Short-term money market instruments issued by the Government of India, acting as promissory notes with assured repayment.
- Sold at a discount and redeemed at face value; there is no coupon.
- Used to meet short-term funding needs, bridge deficits and handle temporary cash mismatches; also linked to money-supply management under OMOs.
- Traded actively in the secondary market and considered risk-free.
- Illustration: a 91-day bill of face value ₹120 bought at ₹118.40 yields ₹1.60 profit.
| Type | Role |
|---|---|
| 91-day | Most traded; short-term liquidity |
| 182-day | Medium-duration, moderate-term needs |
| 364-day | Longest; institutions park funds for about a year |
Eligible investors: individuals, banks, corporates, mutual funds, insurers and FPIs.
Advantages
- Government backing means zero default risk and fixed returns.
- Easy exit in the secondary market.
- Small investors can use non-competitive bidding in weekly RBI auctions, with no need to quote a price or yield.
- No TDS on redemption.
Limitations
- Returns are lower than stocks or mutual funds and do not rise with market upswings.
- Capital growth is capped.
- Selling before maturity exposes the holder to interest-rate price swings.
Taxation
- Gains count as short-term capital gains, taxed at the investor’s slab rate.
Exam angle
- Maximum tenure: 364 days; instrument type: zero-coupon.
- Maldives support: $50 million T-Bill rollover; 2023 swaps of $400 million and ₹30 billion.