How Treasury Bills Work
- Zero Coupon Instruments: Unlike fixed deposits or bonds, T-Bills do not pay you monthly or annual interest. Instead, they are issued at a "discount" to their face value.
- The Mechanism: If you buy a ₹1,00,000 T-Bill at a 7% yield for 364 days, the RBI will not ask you for ₹1 Lakh. They will only deduct ₹93,480 from your bank account today. Exactly 364 days later, they will deposit the full ₹1,00,000 into your account. The ₹6,520 difference is your guaranteed profit.
- Zero Risk: T-Bills are sovereign guaranteed by the Government of India. They are literally the safest investment in the country, safer than any bank FD.
- Taxation: The profit (discount) earned on T-bills is taxed as Short Term Capital Gains (STCG), which is added to your income and taxed at your applicable slab rate. There is NO TDS deducted by the RBI.