Interest on Debenture – Its Accounting Treatment

Interest on Debenture - Its Accounting Treatment-min

Interest on Debenture is calculated on the Face(Nominal) value of the debentures and the rate of interest will be fixed and predefine at the time of the issue of the debentures. 

What is Interest on Debenture: –

The interest on debentures means providing the fixed rate of interest on the face value of debentures to the debenture holders after a fixed period of time. It can be paid quarterly, half-yearly or yearly, it depends on the terms and condition of the categories of the debentures. The payment of interest may be subject to deduction of TDS(Tax Deducted at Source).

Now, Question is that: 

What is TDS (Tax Deducted at Source)? 

TDS (Tax Deducted at Source means the deduction of the income tax form the total amount of the interest payable to the debenture holder at the time of the payment of interest by the company. The latter on the amount of the TDS will be paid to the income tax authorities. 

The Accounting treatment of the Interest on Debentures: 

There will two accounting treatment of the interest on the debentures. These are shown as follows: 

  1. The Accounting Entries without the deduction of TDS 
  2. The Accounting Entries With the deduction of TDS 

1. The Accounting Entries without the deduction of TDS

Date  Particulars
L.F.DebitCredit
      
 Interest on Debentures A/cDr. ***** 
 To Debentureholders’ A/c   *****
 (Being interest on deb. due without considering TDS)   
      
 Debenture holders’ A/cDr. ***** 
 To Bank A/c  *****
 (Being the amount of the interest paid to the debenture holders)   

 

2. The Accounting Entries with the deduction of TDS

Date  Particulars
L.F.DebitCredit
      
 Interest on Debentures A/cDr. ***** 
 To Debentureholders’ A/c   *****
 To TDS Payable A/c    ***
 (Being interest on deb. due with deduction of the TDS)   
     
 Debenture holders’ A/cDr. ***** 
 To Bank A/c  *****
 (Being the amount of the interest paid to the debenture holders)   
      
 TDS Payable A/cDr. ***** 
 To Bank A/c  *****
 (Being the amount of the TDS paid Income tax authorities)   

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References: –

    1. mca.gov.in
    2. Class +2 Accountancy by Sultan Chand & Sons (P) Ltd.

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