For candidates preparing for banking exams like SBI PO, IBPS PO, RBI Grade B, and others, one of the most important topics in the General Awareness and Financial Awareness section is Treasury Bills (T-Bills). Questions are frequently asked on their definition, features, types, and their role in the Indian economy.
Treasury bills are part of the money market instruments that the Government of India and Reserve Bank of India (RBI) use to raise funds and regulate the economy. Since they are considered the safest short-term investment option backed by the government, they are very relevant both for exam preparation and for understanding financial systems. This article explains Treasury Bills in detail with their meaning, features, types, importance, and exam-oriented facts.
What are Treasury Bills (T-Bills)?
A Treasury Bill (T-Bill) is a short-term money market instrument issued by the Government of India through the RBI. These are zero-coupon securities, which means they do not carry any interest (coupon). Instead, they are issued at a discounted price and redeemed at face value on maturity. Treasury Bills are risk-free, short-term government securities that help the government raise funds for meeting short-term needs and help the RBI in controlling money supply and inflation.
For example, suppose you buy a 91-day T-Bill with a face value of ₹100 at a discounted price of ₹98. On maturity, you will receive the full ₹100. The difference of ₹2 is your return or profit.
Importance of Treasury Bills in Bank Exams
Banking exams test candidates on basic financial instruments like Treasury Bills because:
- They are widely used in the Indian money market.
- RBI uses them as a monetary policy tool.
- They are part of static GK and Insurance Awareness.
- Numerical questions can be framed on yield calculation.
- They are linked to concepts like open market operations, fiscal deficit, and monetary policy.
A few typical exam questions include:
- What is the minimum maturity period of Treasury Bills?
- Treasury bills are issued at (discount/premium/face value)?
- Which authority issues Treasury Bills in India?
- Formula for yield on Treasury Bills.
Features of Treasury Bills
Treasury bills have certain unique characteristics that distinguish them from other financial instruments.
- Issuer: Issued by the Government of India through the RBI.
- Tenure: Short-term maturity maximum up to 364 days.
- Zero-Coupon: They do not carry any interest; returns are earned through the difference between issue price and face value.
- Minimum Investment: ₹25,000, and in multiples of ₹25,000 thereafter.
- Auction Process: Issued through weekly auctions conducted by the RBI.
- Safe Investment: Backed by the central government, hence no default risk.
- Liquidity: Can be easily traded in the Secondary Market.
- Tax Treatment: Subject to Short Term Capital Gains (STCG) as per income tax slab but exempt from TDS.
Types of Treasury Bills in India
Treasury Bills are classified based on their maturity period. Currently, the Government of India issues four types of T-Bills:
| Type of T-Bill | Tenure (Maturity Period) | Typical Investors |
| 14-day T-Bill | 14 days | Mainly financial institutions |
| 91-day T-Bill | 91 days (3 months approx.) | Banks, corporates, individuals |
| 182-day T-Bill | 182 days (6 months) | Banks, corporates |
| 364-day T-Bill | 364 days (1 year) | Wide range of investors |
Note: The most popular ones in India are 91-day, 182-day, and 364-day Treasury Bills, while 14-day T-Bills are issued for specific institutional purposes.
Why Does the Government Issue Treasury Bills?
The government issues Treasury Bills mainly for two purposes:
- To Raise Short-Term Funds:
- Helps bridge the gap between revenue and expenditure.
- Used to meet temporary financial needs without resorting to long-term borrowing.
- As a Monetary Policy Tool:
- RBI uses T-Bills to control inflation and liquidity.
- During high inflation, more T-bills are issued to absorb excess money supply.
- During a recession, RBI reduces issuance to increase money in circulation.
Thus, Treasury Bills play a dual role: financing fiscal deficit and regulating money supply.
Yield on Treasury Bills
Since Treasury Bills are issued at a discount and redeemed at face value, the return earned is called the yield.
The formula for calculating yield is:
Where:
- Y = Yield (%)
- P = Purchase price (discounted price)
- D = Tenure (days to maturity)
Example:
If a 91-day T-Bill has a face value of ₹100 and is issued at ₹98:
Note: This type of calculation is often asked in banking exams.
Advantages and Limitations of Treasury Bills
Treasury Bills are considered one of the safest short-term investments. However, like all instruments, they have both strengths and weaknesses. Understanding both sides is important for exam preparation as well as practical investment knowledge.
| Advantages | Limitations |
| Risk-Free Investment: Backed by the Government of India, so no default risk. | Low Returns: Yields are lower compared to equities, corporate bonds, or mutual funds. |
| High Liquidity: Can be easily sold in the secondary market before maturity. | No Regular Income: T-Bills do not provide periodic interest, only lump sum at maturity. |
| Short-Term Maturity: Tenure ranges from 14 days to 364 days, making them ideal for temporary parking of funds. | Inflation Risk: If inflation is higher than the yield, real returns may turn negative. |
| Non-Competitive Bidding: Retail investors can invest without quoting a yield. | Opportunity Cost: Money locked in T-Bills might earn higher returns in other instruments. |
| No TDS Deduction: Makes redemption simple and hassle-free. | Interest Rate Risk: If market rates rise, older T-Bills become less attractive. |
Taxation on Treasury Bills
Taxation is an important aspect to understand for exam purposes as well as for practical investment decisions. Treasury Bills do not pay regular interest; instead, the return is the difference between the purchase price (discounted value) and the face value (redemption value). This gain is treated as income from capital gains.
Key Points on Taxation:
- Short Term Capital Gains (STCG):
- Since T-Bills have a maturity of less than one year, the returns are treated as short-term capital gains.
- The tax rate depends on the investor’s income tax slab. For example, if you are in the 20% slab, your gain will be taxed at 20%.
- No TDS (Tax Deducted at Source):
- At the time of redemption, no TDS is deducted by the RBI or government.
- This is beneficial for small investors, as they do not need to claim refunds.
- Taxation for Different Investors:
- Individuals: Gains are added to taxable income and taxed as per slab rate.
- Corporates and Banks: Gains are included in business income and taxed accordingly.
- Mutual Funds: If mutual funds hold T-Bills, taxation applies at the fund level, and investors are taxed as per the type of scheme.
- Example:
Suppose an investor buys a 91-day T-Bill for ₹98 (face value ₹100). On maturity, he receives ₹100.- Profit = ₹2
- If he falls under the 30% tax slab, tax = ₹0.60
- Net post-tax return = ₹1.40
Thus, while T-Bills are tax-efficient due to no TDS, investors must calculate their net returns after tax.
Treasury Bills in India vs. USA
Treasury bills serve the same purpose in both India and the USA; short-term borrowing by the government. However, they differ in terms of minimum investment, tenure, and issuing authority, which makes it important to understand these distinctions for exams.
| Basis | Treasury Bills in India | Treasury Bills in USA |
|---|---|---|
| Issuer | Government of India through RBI | U.S. Department of Treasury |
| Minimum Investment | ₹25,000 | $100 |
| Tenure | 14, 91, 182, 364 days | 4 to 52 weeks |
| Interest | Zero coupon (issued at discount) | Zero coupon (issued at discount) |
Bank Exam Preparation Practice – Treasury Bills
Practice some questions based on Treasury Bills for upcoming bank exams.
Questions
- Treasury Bills are classified under which type of market instrument?
a) Capital Market
b) Money Market
c) Foreign Exchange Market
d) Commodity Market - Which of the following is the maximum maturity period of Treasury Bills in India?
a) 91 days
b) 182 days
c) 364 days
d) 728 days - Treasury Bills are issued at __________ and redeemed at __________.
a) Premium, Face Value
b) Discount, Face Value
c) Face Value, Premium
d) Market Price, Premium - Who issues Treasury Bills in India?
a) Ministry of Finance
b) RBI on behalf of Government of India
c) SEBI
d) NABARD - What is the minimum investment amount in Treasury Bills in India?
a) ₹1,000
b) ₹10,000
c) ₹25,000
d) ₹50,000 - Treasury Bills are also known as:
a) Zero Coupon Securities
b) Perpetual Bonds
c) Callable Bonds
d) Inflation-Indexed Bonds - Which type of investors can participate through the Non-Competitive Bidding route?
a) Institutional Investors only
b) Retail Investors
c) FIIs only
d) Corporates only - Returns from Treasury Bills in India are taxable under:
a) Exempt category
b) Short Term Capital Gains as per income slab
c) Long Term Capital Gains
d) Dividend Taxation - Which among the following is NOT a maturity period of T-Bills in India?
a) 14 days
b) 91 days
c) 182 days
d) 730 days - What is the minimum investment amount for U.S. Treasury Bills?
a) $10
b) $100
c) $500
d) $1,000
Answer Key
- b) Money Market
- c) 364 days
- b) Discount, Face Value
- b) RBI on behalf of Government of India
- c) ₹25,000
- a) Zero Coupon Securities
- b) Retail Investors
- b) Short Term Capital Gains as per income slab
- d) 730 days
- b) $100
FAQs
Treasury Bills are short-term money market instruments issued by the government to meet temporary funding needs. They are issued at a discount and redeemed at face value, offering risk-free returns.
In India, the minimum investment amount for Treasury Bills is ₹25,000, and further investments can be made in multiples of ₹25,000.
The returns from Treasury Bills are considered as short-term capital gains or interest income (depending on treatment) and taxed according to the investor’s income tax slab. Unlike tax-free bonds, T-Bill returns are not exempt from tax.
In India, Treasury Bills are available in 14, 91, 182, and 364 days maturities. In the USA, they are issued with maturities ranging from 4 weeks to 52 weeks.
Both institutional investors and retail investors can invest in Treasury Bills. Retail investors can participate through the non-competitive bidding route on platforms like RBI Retail Direct or NSE GoBID.
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