What is the nature of Discount on the issue of Debentures?

Capital Loss

The correct answer is option 3- Capital Loss.

When a debenture is issued at a price below its nominal value, it is said to be issued at a discount. For example, the issue of Rs. 100 debentures at Rs. 95, Rs. 5 being the amount of discount. Discount or Loss on issue of debentures is a capital loss and is written-off in the year when debentures are issued. Discount or loss can be written-off from securities premium reserve [section 52(2)]. In case, capital profit do not exist or are inadequate, the amount should be written off against revenue profits of the year. The journal entry passed is—
Securities Premium Reserve A/c Dr.
Statement of Profit and Loss [If exists to the extent of balance] Dr.
        To Discount/Loss on Issue of Debentures A/c
(Discount/Loss on issue of debentures written-off)