Taxation of T-Bills

T-bills or Treasury Bills are short-term debt instruments issued by the Government of India. The taxation of T-bills depends on whether they are held till maturity or sold before maturity.

If T-bills are sold before maturity, they are treated as a form of interest income and taxed under the head "Income from Other Sources" in the ITR.

If T-bills are held till maturity, they are considered as capital assets and are taxed under the head "Income from Capital Gains" in the Income Tax Return (ITR).
 

Section 56(2)(ix) of the Income Tax Act specifically deals with the taxation of income from the transfer of certain capital assets, including T-bills. This section states that if an individual or a Hindu Undivided Family (HUF) receives any sum of money as a result of the transfer of a capital asset, including Treasury Bills, by way of gift or otherwise without consideration, the fair market value of such asset will be deemed as the individual's or the HUF's income for that financial year. This fair market value is then subject to tax under the applicable tax rates.