Step 1: Historical background of Taxila.
Taxila was one of the most ancient centers of learning and culture in the Indian subcontinent. It gained fame during the Maurya and Kushan periods and was known for its world-renowned university that attracted scholars from across Asia.
Step 2: Modern geographical location.
In the present day, the ruins of Taxila are situated in Punjab province of Pakistan, near Islamabad. It is not in Bihar or Gujarat (both are states in India), nor in Baluchistan or the North West Frontier Province. The site is preserved as an important UNESCO World Heritage Site.
Step 3: Elimination of options.
- (A) Bihar: Incorrect, as Nalanda (not Taxila) was in Bihar.
- (B) Gujarat: Incorrect, Gujarat has other historical sites, not Taxila.
- (C) NWFP, Pakistan: Incorrect, Taxila is not located there but in Punjab.
- (D) Punjab, Pakistan: Correct, this is the exact location of Taxila.
- (E) Baluchistan, Pakistan: Incorrect, Taxila is not in this province.
\[
\boxed{\text{Taxila is located in Punjab, Pakistan.}}
\]