Loans, EMI and interest entries

Taking the loan (F6 or F7)

Bank A/c                       Dr  10,00,000
    To HDFC Term Loan A/c (Secured Loans)      10,00,000

Each EMI (F5)

An EMI has two parts. Take the split from the lender's repayment schedule.

Example EMI ₹21,247: interest ₹8,333 and principal ₹12,914.

Interest on Loan A/c           Dr     8,333
HDFC Term Loan A/c             Dr    12,914
    To Bank A/c                                   21,247

Only the interest is an expense. The principal reduces the loan.

Year-end

• Match the loan ledger with the lender's balance confirmation or interest certificate.
• Show the part payable in the next 12 months as a current liability (current maturity of long-term debt).
• Book any interest due but not yet debited as an outstanding expense.

Loans from friends, relatives or directors

• Take and repay by bank transfer. Cash of ₹20,000 or more is barred (old 269SS / 269T).
• If a company, firm or tax-audited proprietor pays interest above ₹10,000 in a year to one lender (other than a bank), deduct 10% TDS (old 194A).