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CA Foundation · Accounting · Company Accounts

Nair Ltd. has ₹5,00,000 of 9% debentures outstanding. Interest is payable annually on 31 March. The debenture holders are paid interest for the year, and tax at 10% is deducted at source (TDS) from the interest. What amount is paid in cash to debenture holders?

Debenture holders receive ₹40,500 in cash. Gross interest is 9% of ₹5,00,000, which is ₹45,000. TDS at 10% amounts to ₹4,500 and is deducted and paid to the government, so the net payment to holders is ₹40,500.

  1. A₹40,500Correct
  2. B₹45,000
  3. C₹49,500
  4. D₹4,500

Explanation

Gross interest = 9% × ₹5,00,000 = ₹45,000. TDS at 10% = ₹4,500, which is deposited with the government. Cash paid to holders = ₹45,000 − ₹4,500 = ₹40,500. ₹45,000 ignores TDS, and ₹4,500 is only the tax.

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