364-Day T-Bill Yields 5.645%. 10-Year G-Sec Yields 7.0%. One Is Taxed at Your Slab Rate. The Other Gets 12.5% Flat LTCG. That Tax Gap Changes Everything — and Nobody Talks About It.
Both Treasury Bills and Government Bonds carry the same sovereign guarantee. Same issuer — Government of India. Same platform to buy — RBI Retail Direct. Zero default risk on both.
But the yields are different, the tax treatment is different, the liquidity profile is different, and the right choice depends entirely on your holding period, tax bracket, and whether you need periodic income.
This is the complete comparison — with post-tax math at every bracket, not just the pre-tax numbers that every other article shows.
The Pre-Tax Yield Curve: T-Bills vs Dated G-Secs (May 2026)
| Instrument | Tenor | Yield (Annualized) | Coupon | Issue Type |
|---|---|---|---|---|
| 91-day T-Bill | 91 days | 5.21% | None (discount) | Weekly auction |
| 182-day T-Bill | 182 days | 5.30% | None (discount) | Fortnightly auction |
| 364-day T-Bill | 364 days | 5.645% | None (discount) | Fortnightly auction |
| 5-year G-Sec | 5 years | 6.72% | Semi-annual | Periodic auction |
| 10-year G-Sec | 10 years | 7.00% | Semi-annual | Periodic auction |
| 30-year G-Sec | 30 years | 7.57% | Semi-annual | Periodic auction |
| RBI Repo Rate | Overnight | 5.25% | — | Policy rate |
The yield curve is normal — longer maturities pay more. The spread between the 91-day T-Bill and the 10-year G-Sec is 179 basis points. Between the 364-day T-Bill and the 30-year G-Sec, it is 193 bps.
Those 179-193 bps of extra yield come at the cost of locking your money for 5 to 30 years, accepting interest rate risk on the principal, and dealing with poor secondary market liquidity for retail investors.
Is that trade-off worth it? The pre-tax numbers cannot answer this question. The post-tax numbers can.
The Tax Treatment — This Is Where the Math Diverges
T-Bills: Always Short-Term Capital Gains
T-Bills mature within 12 months. The gain (face value Rs 100 minus your discounted purchase price) is classified as Short-Term Capital Gains and taxed at your full slab rate. No exceptions. No special rates.
There is no TDS for resident investors on T-Bills held in demat form. NRIs face 30% TDS.
G-Secs: Split Taxation — Coupon vs Capital Gains
G-Sec taxation has two layers:
- Coupon (semi-annual interest): Taxed as “Income from Other Sources” at your full slab rate — every year you receive the coupon
- Capital gains on sale/maturity: If held over 12 months, taxed at 12.5% flat LTCG (no indexation). If held under 12 months, taxed at slab rate as STCG
This split matters enormously. If you buy a G-Sec below par value (below Rs 100 face value), the capital gain component at maturity is taxed at just 12.5% — not your 30% slab rate. That is a 17.5 percentage point tax saving on the capital gain portion.
For more on how this compares to debt mutual funds after the 2024 tax changes, see the G-Sec vs debt mutual fund post-tax comparison.
The Post-Tax Math — Side by Side at Every Bracket
T-Bill Post-Tax Yields
| Tax Bracket | 91-Day T-Bill (5.21%) | 182-Day T-Bill (5.30%) | 364-Day T-Bill (5.645%) |
|---|---|---|---|
| 0% (new regime under Rs 12.75L) | 5.21% | 5.30% | 5.645% |
| 5% | 4.95% | 5.04% | 5.36% |
| 10% | 4.69% | 4.77% | 5.08% |
| 15% | 4.43% | 4.51% | 4.80% |
| 20% | 4.17% | 4.24% | 4.52% |
| 30% | 3.65% | 3.71% | 3.95% |
| 30% + cess (31.2%) | 3.58% | 3.65% | 3.88% |
At the 30% bracket with cess, your 364-day T-Bill yielding 5.645% gives you 3.88% post-tax. That is less than the inflation target.
G-Sec Post-Tax Yields (Coupon Only, Taxed at Slab Rate)
| Tax Bracket | 5Y G-Sec (6.72%) | 10Y G-Sec (7.00%) | 30Y G-Sec (7.57%) |
|---|---|---|---|
| 0% | 6.72% | 7.00% | 7.57% |
| 5% | 6.38% | 6.65% | 7.19% |
| 10% | 6.05% | 6.30% | 6.81% |
| 15% | 5.71% | 5.95% | 6.43% |
| 20% | 5.38% | 5.60% | 6.06% |
| 30% | 4.70% | 4.90% | 5.30% |
| 30% + cess (31.2%) | 4.62% | 4.82% | 5.21% |
At 30% with cess, the 10Y G-Sec coupon yield of 7.0% becomes 4.82% post-tax. Still better than the T-Bill’s 3.88% — a gap of 94 basis points after tax.
But remember: if you buy the G-Sec below par and hold to maturity, the capital gain is taxed at only 12.5%. The blended effective tax rate falls below your slab rate.
The FD Elephant in the Room
Before going further, an honest comparison must acknowledge this:
| Instrument | Pre-Tax Yield | Post-Tax (30% + cess) | Safety | Liquidity |
|---|---|---|---|---|
| 364-day T-Bill | 5.645% | 3.88% | Sovereign guarantee | Hold to maturity |
| SBI FD (1 year) | 6.25% | 4.30% | DICGC Rs 5L insurance | Premature penalty 0.5% |
| HDFC Bank FD (1 year) | 6.40% | 4.40% | DICGC Rs 5L insurance | Premature penalty 1% |
| Post Office TD (1 year) | 6.90% | 4.75% | Government guarantee | Premature withdrawal after 6 months |
FDs pay 60-125 bps more than 364-day T-Bills right now. Banks have not fully transmitted RBI’s rate cuts from 6.50% to 5.25%, creating a temporary window where FDs beat T-Bills on pure yield.
Why would anyone buy a T-Bill then? Three reasons:
- No TDS — T-Bills have zero TDS for residents, while FDs deduct 10% TDS above Rs 40,000 annually
- No counterparty risk — sovereign guarantee vs DICGC insurance capped at Rs 5 lakh per bank
- Clean tax filing — single capital gain event at maturity vs annual interest accrual and TDS reconciliation
For a detailed breakdown of what FDs actually yield after tax, see the post-tax FD yield calculator.
How to Buy: RBI Retail Direct Is the Only Platform That Matters
Both T-Bills and G-Secs are available through RBI Retail Direct (rbiretaildirect.org.in) — a free platform with no brokerage, no annual charges, and no intermediary.
| Feature | Detail |
|---|---|
| Minimum investment | Rs 10,000 (multiples of Rs 10,000) |
| Maximum investment | No limit for non-competitive bids |
| Account opening fee | Free |
| Annual maintenance | Free |
| Brokerage | Zero |
| T-Bill auctions | Every Wednesday (91-day), fortnightly (182 and 364-day) |
| G-Sec auctions | Periodic, announced by RBI |
| Bidding type | Non-competitive (you get the auction’s weighted average yield) |
| Settlement | T+1 |
| T-Bill SIP | Available since August 2025 |
The T-Bill SIP
RBI introduced automatic T-Bill SIP in August 2025. You set a recurring bid amount (minimum Rs 10,000) and the platform auto-bids in weekly auctions. This is the closest thing to a systematic debt investment plan with zero cost and sovereign guarantee.
The catch: RBI can cancel auctions. It happened in February 2025 and again in March 2026. When an auction is cancelled, your SIP simply skips that week — no money is debited, no interest is earned. This creates reinvestment gaps you cannot control.
For a step-by-step walkthrough of account opening, bidding, and the SIP facility, see the complete RBI Retail Direct guide.
Liquidity: T-Bills Win by Default
| Factor | T-Bills | Dated G-Secs |
|---|---|---|
| Maturity range | 91 to 364 days | 5 to 40 years |
| Need for secondary market | Rarely — hold to maturity | Often — unless you commit for decades |
| Secondary market liquidity | Not needed (short maturity) | Poor for retail investors |
| Bid-ask spread for retail | N/A | 20-50+ bps on off-the-run securities |
| Exit cost before maturity | Negligible (sell on NDS-OM) | Significant — wide spreads, slow execution |
| Interest rate risk | Minimal (short duration) | High — a 1% rate rise on a 10Y G-Sec causes ~7% price drop |
T-Bills do not have a liquidity problem because they mature within 12 months. You never need to sell early — just wait for maturity.
G-Secs, particularly 10-year and 30-year tenors, expose you to significant interest rate risk. If you buy a 30-year G-Sec at 7.57% and rates rise to 8.5%, the market price of your bond drops approximately 12-15%. Selling at that point locks in a real loss.
The institutional market for G-Secs is deep — Rs 10+ lakh crore of annual trading. But retail investors on RBI Retail Direct operate on the fringes of this market. Your sell order competes with institutional block trades. Execution can be slow, and the price you get may not match the “indicative yield” displayed on the platform.
The Compounding Trap: Why G-Sec Coupons Hurt More Than You Think
Here is a fact most bond articles skip: G-Sec coupons are taxed every year they are paid. This annual tax leakage destroys compounding.
Rs 10 Lakh Invested for 10 Years — Compounding Comparison
| Scenario | Gross Return | Tax Treatment | After-Tax Corpus (30% bracket) |
|---|---|---|---|
| 10Y G-Sec at 7.0% (coupon reinvested) | Rs 19,67,151 | Coupon taxed annually at 31.2% | Rs 16,07,000 |
| Debt MF at 7.0% (growth, held 10Y) | Rs 19,67,151 | 12.5% LTCG on entire gain at exit | Rs 18,46,000 |
| 364-day T-Bill rolled at 5.645% (10Y) | Rs 17,31,800 | STCG at 31.2% each year on rollover | Rs 14,59,000 |
The debt mutual fund beats the G-Sec by Rs 2,39,000 on a Rs 10 lakh investment over 10 years — purely because of deferred taxation. The fund compounds the full 7.0% for 10 years and pays tax only once at exit. The G-Sec pays tax every six months, reducing the corpus available for reinvestment.
This is the hidden cost of G-Sec coupons. The headline yield of 7.0% translates to a lower effective compounded return than a debt fund with the same gross yield.
For the full comparison with exact numbers at every holding period, see the G-Sec vs debt mutual fund post-tax showdown.
Who Should Buy What — A Decision Framework
Buy T-Bills If:
- Your time horizon is under 12 months — parking surplus cash, awaiting deployment into equity or real estate
- You want zero credit risk with zero lock-in — 91-day T-Bills mature in 3 months
- You are in the 0-15% tax bracket — post-tax yields are still reasonable (4.43-5.645%)
- You dislike TDS — T-Bills have no TDS for residents, unlike FDs
- You want systematic short-term deployment — T-Bill SIP via RBI Retail Direct auto-bids every week
- You are an NRI and need sovereign instruments (note: 30% TDS applies)
Buy Dated G-Secs If:
- You can hold for 5+ years — this eliminates interest rate risk and unlocks 12.5% LTCG on capital gains
- You want higher yield — 6.72% to 7.57% vs 5.21-5.645% for T-Bills
- You are building a hold-to-maturity bond ladder — buy 5Y, 7Y, 10Y G-Secs for staggered maturities
- You want semi-annual income — retirees needing periodic cash flow from coupon payments
- You believe rates will fall further — if RBI cuts repo from 5.25% toward 4.50%, existing G-Secs with higher coupons will appreciate in price
Buy Neither — Choose Alternatives If:
- You want the highest safe short-term yield — FDs at 6.25-6.40% beat T-Bills right now. See the best FD rates comparison
- You want compounding without annual tax drag — debt mutual funds defer taxation to exit, beating G-Secs on after-tax compounded returns
- You want guaranteed retirement income — SCSS at 8.0% or RBI Floating Rate Bonds at ~8.05% pay more than both T-Bills and G-Secs
- You need credit spread for higher returns — corporate bonds yield 80-100 bps over G-Secs but come with credit risk
Hidden Gotchas Most Investors Miss
1. T-Bill Yields Are Falling Faster Than FD Rates
The 364-day T-Bill has dropped from ~7.1% in early 2025 to 5.645% in May 2026 — a 145 bps decline. Bank FDs have barely moved (down 25-50 bps). This divergence is temporary. When banks eventually cut FD rates (and they will), the gap will narrow. But right now, rolling T-Bills means accepting significantly lower yields than equivalent-tenor FDs.
2. RBI Auction Cancellations Are Not Hypothetical
RBI cancelled T-Bill auctions in February 2025 and March 2026 to manage short-term liquidity. This is not a one-off event — it is a policy tool. If you rely on T-Bill SIPs for systematic deployment, expect occasional gaps. Your money earns nothing during these gaps.
3. G-Sec “Yield” Is Not Your “Return” If You Cannot Hold to Maturity
A 10-year G-Sec yielding 7.0% delivers exactly 7.0% only if you hold all 10 years and reinvest coupons at 7.0%. If rates rise and you sell early, you realize a capital loss. If rates fall and you reinvest coupons, you earn less than 7.0% on reinvested amounts. This reinvestment risk is invisible in headline yield figures but real in practice.
4. The Annual Coupon Tax Drag Is Substantial
At the 30% bracket, a 7.0% G-Sec coupon loses 2.18% annually to tax. Over 10 years, this cumulative leakage means you keep approximately Rs 16.07 lakh on a Rs 10 lakh investment — versus Rs 18.46 lakh if the same return compounded tax-deferred in a debt fund. The Rs 2.39 lakh difference is the price of annual taxation.
5. G-Secs Bought Below Par Have a Hidden Tax Advantage
If the 10-year benchmark G-Sec trades at Rs 96 on the secondary market (coupon 6.5%, yield ~7.0%), the Rs 4 capital gain at maturity is taxed at 12.5% LTCG — just Rs 0.50 per unit. The same Rs 4 earned as additional interest on a T-Bill would be taxed at up to Rs 1.25 at the 30% bracket. This below-par purchase strategy is underused by retail investors.
6. Mixing Both Works — T-Bill Rolling + G-Sec Core
The optimal strategy for many investors is not either/or. Use T-Bills (91-day or 364-day) for the short-term liquid bucket — money you may need within 12 months. Use 5-10 year G-Secs for the long-term hold-to-maturity core — locked in at today’s 6.72-7.0% yields before rates potentially fall further. This barbell approach gives you liquidity at the short end and yield at the long end, all with sovereign guarantee.
The Bottom Line Comparison
| Parameter | T-Bills | Dated G-Secs |
|---|---|---|
| Yield range (May 2026) | 5.21-5.645% | 6.72-7.57% |
| Tax on gains | STCG at slab rate (always) | Coupon at slab; capital gain at 12.5% LTCG if >12 months |
| Post-tax yield (30% bracket) | 3.58-3.88% | 4.62-5.21% (coupon only) |
| Minimum investment | Rs 10,000 | Rs 10,000 |
| Platform | RBI Retail Direct (free) | RBI Retail Direct (free) |
| TDS (residents) | None | 10% on coupon if >Rs 10,000/year |
| Liquidity | Excellent (short maturity) | Poor for retail secondary market |
| Interest rate risk | Negligible | Significant (7%+ price impact per 1% rate change on 10Y) |
| Income frequency | Lump sum at maturity | Semi-annual coupon |
| SIP facility | Yes (since August 2025) | No |
| Best suited for | Short-term parking, <12 month horizon | Long-term hold-to-maturity, income generation |
T-Bills are the safest short-term parking instrument in India. G-Secs are the safest long-term fixed-income instrument. They serve different purposes, and treating them as substitutes is the mistake most investors make.
Pick based on your time horizon and tax bracket — not just the headline yield.
Sovereign debt instruments like T-Bills and G-Secs carry zero default risk but are subject to interest rate risk (for G-Secs) and reinvestment risk (for both). Post-tax yields calculated using FY2026-27 tax slabs including 4% health and education cess. Yields are indicative based on recent auction results and may vary. Data sourced from RBI auction results and CCIL. For the complete comparison of government bonds versus corporate bonds with after-tax math, see our corporate bonds vs government bonds guide. For the four-way comparison of T-Bills against FDs, liquid funds, and invoice discounting, see the post-tax truth comparison.