debenture interest. noun [ U ] FINANCE. an amount of money paid regularly to the lenders on debentures: Debenture interest has to be paid by a company whether it makes a profit or not.
What is debenture interest?
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. … The interest paid to them is a charge against profit in the company’s financial statements. The term “debenture” is more descriptive than definitive.
Is debenture interest an income?
The company paying interest on debentures deducts income tax on interest at the prescribed rate. Companies deposit the amount of tax deducted with the income tax authorities.
Are debentures interest free?
Interest on Debenture: … Interest rate in respect of debentures is freely determinable by the issuer company. The interest may be paid quarterly, half-yearly or on any other terms of its issue. Zero Rates of Interest Debentures: Company can issue this type of debenture, Rate of interest in these debentures will be zero.
What is debenture interest in accounting?
Finance. Debentures are a type of debt instrument or bond that does not have any underlying collateral assets. Due to being unsecured loans, debt through debentures may be more difficult to obtain.
What is debenture simple words?
A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, they must rely on the creditworthiness and reputation of the issuer for support. Both corporations and governments frequently issue debentures to raise capital or funds.
How is debenture interest paid?
An interest paid is an award to all the debenture holders for investing in the debentures of an enterprise. … When an enterprise circulates debentures, it provides interest on debentures at a fixed rate on its nominal (face) value payable quarterly, half yearly or yearly as per the terms of issue.
What is debenture example?
What is a Debenture? A debenture is a bond issued with no collateral. Instead, investors rely upon the general creditworthiness and reputation of the issuing entity to obtain a return of their investment plus interest income. … Examples of debentures are Treasury bonds and Treasury bills.
Why do companies pay debenture interest?
The company has to pay the interest to its debenture holders if the company acquires any profit. The interest on debentures is a charge to the profit of the company. … The debenture holders can assign the TDS amount against the tax that is due from them.
Are debentures liabilities?
Debenture bonds are liabilities of the company because they represent debts that will have to be repaid in the future. … Long-term liabilities are debts that are not required to be repaid within one year.
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Is debenture a loan?
In the United States, a debenture is a loan that is backed by the full faith and credit of the issuer. This means that, in the US at least, a debenture is a type of Unsecured Loan, with the high creditworthiness of the borrower prompting the lender to make the loan.
Are debentures safe?
What some investors don’t realise is that, unlike fixed-term deposits that carry virtually no risk, debentures come with a high level of risk. Unfortunately, there’s no such thing as a free lunch with fixed interest securities such as debentures. The market is quite efficient at pricing a risk premium into the return.
Is a debenture an asset?
US vs UK debentures
In the US, a debenture is a medium to long-term loan, issued to a company by an investor. Think of it as an unsecured loan that is supplied in good faith – unlike UK debentures, the loan is not backed up by physical assets, only by the company’s good reputation in the eyes of the investor.