T-Bills on Zerodha

Treasury Bills (T-Bills) are short-term Government Securities issued by the Government of India through the Reserve Bank of India (RBI) with maturities of 91 days, 182 days, and 364 days. They are zero-coupon instruments: issued at a discount to face value and redeemed at face value (Rs 100 per unit) at maturity. The discount represents the investor’s return. T-Bills carry sovereign guarantee and zero credit risk. Zerodha provides access to T-Bills through the exchange-traded debt market on Kite and directs investors to the RBI Retail Direct portal for primary auction participation.

Structure and mechanics

T-Bills are auctioned weekly by RBI. The three tenors auction on a regular schedule:

• 91-day T-Bill: Auctioned every Wednesday.
• 182-day T-Bill: Auctioned every alternate Wednesday.
• 364-day T-Bill: Auctioned every alternate Wednesday (opposite to 182-day).

RBI’s auction calendar is published in advance. The notified amount for each auction is determined by the government’s weekly borrowing requirement.

Discount yield calculation

The return on a T-Bill is expressed as a yield and calculated from the issue price:

Yield (%) = [(Face Value - Issue Price) / Issue Price] × (365 / Days to Maturity) × 100

For example, a 91-day T-Bill with an issue price of Rs 98.00 and face value of Rs 100:

• Discount = Rs 2.00
• Yield = (2.00 / 98.00) × (365 / 91) × 100 = 8.22% per annum (approximate)

T-Bill yields are benchmarks for the short end of the yield curve and closely track the RBI repo rate. When RBI raises the repo rate, T-Bill yields typically rise within days as primary market auctions reflect the new rate environment.

Access through Zerodha

Primary auction via RBI Retail Direct

Retail investors can submit non-competitive bids (NCBs) in T-Bill primary auctions through RBI Retail Direct (rbiretaildirect.org.in). Non-competitive bids are allotted at the weighted average yield of competitive bids, ensuring retail investors receive market-determined returns. The minimum NCB amount is Rs 10,000. Zerodha does not intermediate primary T-Bill applications; investors must open a separate Retail Direct Gilt Account (RDGA) with RBI for this purpose.

Secondary market via Kite

T-Bills that have already been issued in primary auctions trade in the secondary market on NSE’s debt segment. Investors can buy T-Bills on Kite using the ISIN of the specific T-Bill (e.g., searching for “91TB” or specific ISINs). Secondary market T-Bill transactions settle on T+1 and the units are held in the demat account at CDSL or NSDL.

Liquidity in the secondary T-Bill market for retail investors is limited. Institutional investors dominate T-Bill trading through the NDS-OM platform. Exchange-traded T-Bills for retail investors have reasonable liquidity in the 91-day segment but less so in 182-day and 364-day T-Bills.

Liquid funds as an alternative

Many retail investors seeking T-Bill equivalent returns without the operational complexity of buying T-Bills directly use liquid mutual funds or overnight mutual funds available through Zerodha’s Coin platform. Overnight funds invest in overnight reverse repo instruments, while liquid funds invest in T-Bills and other money-market instruments with up to 91-day maturity. These funds offer:

• Daily NAV-based liquidity.
• No accrued interest computation required.
• Auto-reinvestment of income.
• Instant redemption facility (up to Rs 50,000 per day) for qualifying liquid funds.

Post the Finance Act, 2023, liquid fund gains are taxed as business income at slab rate (since the holding period for LTCG treatment on debt funds was removed for units purchased on or after 1 April 2023). Directly held T-Bills have a separate (older) tax treatment.

Brokerage and charges

For exchange-traded T-Bills on Kite:

There are no charges for primary auction participation through RBI Retail Direct; the discount is the only cost embedded in the purchase price.

Tax treatment

Discount treated as interest income

The discount on T-Bills (the difference between face value and purchase price) is treated as interest income, taxable at the investor’s slab rate under the head “Income from Other Sources.” TDS does not apply to T-Bill returns for resident individuals when purchased through primary auctions or exchange-traded secondary markets.

Capital gains treatment (secondary market)

If a T-Bill is purchased in the secondary market at a price other than the original issue price and held to maturity or sold before maturity, any gain or loss may have both interest and capital gains components. In practice, the income tax treatment of T-Bill discount is governed by CBDT’s position on zero-coupon bonds: the accrued discount is treated as interest income annually (or on redemption), not as capital gain.

No LTCG benefit

T-Bills have maturities of less than one year, so they cannot qualify for LTCG treatment. All income is taxed as ordinary income at slab rate, making T-Bills less tax-efficient than equity investments for investors in higher tax brackets.

Practical use cases

• Parking short-term surplus: An investor expecting to need funds within 3-6 months can invest in 91-day or 182-day T-Bills rather than a savings account.
• Lower credit risk than bank FDs: T-Bills carry zero credit risk. Bank fixed deposits carry credit risk of the bank (though insured by DICGC up to Rs 5 lakh per depositor per bank).
• Yield arbitrage: During periods of RBI rate-hiking cycles, T-Bill yields can exceed bank savings account rates significantly, making them an attractive parking option.

References

1. RBI, Primary auction schedule for T-Bills (published quarterly).
2. RBI Retail Direct, Non-competitive bid guidelines.
3. Income Tax Act, 1961, Section 2(48) (zero coupon bonds) and Section 56 (income from other sources).
4. NSE Wholesale Debt Market, T-Bill trading specifications.
5. RBI Monetary Policy Committee, Repo rate and money-market rate data.