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Interest on Debentures

Interest paid is the reward to the debenture holders for investing in the debentures of the company.

Interest is paid periodically at a predetermined fixed rate on the face value of debentures and is treated as a charge against profits.

The company will pay an interest net of tax to the debenture holders as the company is under an obligation to deduct tax at source at the rates applicable as per the tax laws.

The tax deducted at source (TDS) will be remitted to the tax authorities.

The journal entries are as follows:

  • No interest is payable on debentures issued as collateral security.
  • Interest accrued and due on debentures appear under the head ‘Secured Loans’.
  • Interest accrued but not due on debentures appear under the head ‘Current Liabilities’.

Illustration 3


A Ltd. has issued 10 per cent debentures of ₹ 10 lakhs, redeemable at par, after 8 years from the date of issue. Interest on debentures is payable annually. The applicable rate of TDS is 20 per cent. Pass the journal entry for interest payment for year 1.



Journal Entries in the books of A Ltd.

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