Budget 2026: What is a Treasury Bill (T-Bill)? How it works, key features, tax treatment and more

Budget 2026 | Union Finance Minister Nirmala Sitharaman’s presented her ninth consecutive Budget in the Parliament on February 1 2026. The Finance Minister emphasised that the government has consistently chosen reform over rhetoric and addressed global uncertainty.

What is a Treasury bill?

A Treasury bill, commonly known as a T-bill, is a short-term debt instrument issued by the U.S. government to meet its immediate funding needs. These securities have maturities of less than one year, typically ranging from four weeks to 52 weeks, making them one of the safest short-term investment options available. T-bills are backed by the full faith and credit of the U.S. government, which is why they are considered low-risk investments. They are widely used by investors seeking capital preservation, liquidity, and predictable returns.How do Treasury bills work? Unlike traditional bonds, T-bills do not pay periodic interest. Instead, they are sold at a discount to their face value. When the bill matures, the investor receives the full face value, and the difference between the purchase price and the maturity value represents the investor’s return.Key features of Treasury bills include:

1. Issued at discount and redeemed at full value: T-bills are sold for less than their face value and redeemed at full value at maturity. The difference represents your return, instead of receiving periodic interest.
2. No interest payments during holding period: Unlike regular bonds, T-bills don’t pay interest while you hold them. The profit comes entirely from the discount at purchase.
3. Short maturity periods (weeks to months): T-bills are short-term securities, typically maturing in 4 to 52 weeks. Their short duration makes them highly liquid and ideal for safe, short-term investments.

Tax treatment of T-Bills

Returns earned on Treasury bills are subject to income tax and is exempt from state and local taxes.  This tax advantage makes T-bills particularly attractive to investors living in states with higher tax rates.Why T-Bills matter in a Budget Context Treasury bills play a crucial role in government financing and monetary management. For investors, they offer a secure and tax-efficient way to park funds in the short term while maintaining liquidity and stability.