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Old 23rd April 2012, 13:03   #136
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Corporate lease on cars used to save on tax is going to be abolished.

Income Tax sleuths can use GAAR to question pay packages that help in reducing tax - The Economic Times
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Old 24th April 2012, 03:20   #137
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Read this in ET today - this will put leasing companies in a spot till this is clarified. We have put our plans on hold till this is clarified. It will really kill the leasing business if this comes in to effect.


GAAR effect: Income Tax sleuths can use it to question pay packages that help in reducing tax - ET

Car leases, which are widely used, are particularly at risk as the vehicle is effectively owned by the employee though it remains on the company's books. The employee gets to save on some tax as the loan is deducted from his salary.

The only silver lining is that this will apply from the fiscal year beginning April 1, 2012, and past claims will not be opened.
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Old 4th May 2012, 11:10   #138
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

GAAR may be put off by a year

The government will also specify a threshold in GAAR to determine the tax amount above which the rule could be invoked.

The ministry is planning a high threshold so that small investors, salaried taxpayers and individuals are exempted. The threshold may be around Rs 10-15 crore, lower than industry expectations.
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Old 31st July 2012, 18:12   #139
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Hi Guys,
I would like to share my experience with operating lease.
I went for an Operating Lease from my company Alcatel Lucent India with ALD Automotive in 2009 for buying an i20 ASTA Petrol.
Basically the contract was MRV - Market Residual Value i.e, At the end of tenure of 3 years the car has to be returned back to the leasing company. The leasing company will auction the car and based on the MRV of the car, the car can be bought back.
Total cost of the car (without accessories including insurance): 6.67L (Approx) (2009 model)
Amount paid through EMI monthly= 18,321*36 = 6.59 L

Tax benefit = 6.59L for 3 years.
I could claim 1.8L per year for Petrol and 36K for maintenance for 3 yrs as part of my CTC.
Insurance was paid by the leasing company for 3 yrs.
Obviously I had to pay some percentage of tax on this as per the company car tax policy of the govt.

MRV of the car (as published by the leasing company) after 3 yrs: 4.16 L

I decided to give back the car since i felt paying more than 10L after the end of 3 years for a petrol car was not worth it.
However it was something like a no profit-no loss situation.
The only problem being,I was rendered car-less for more than a month because the leasing company took back my car and took almost 2 weeks to determine the final MRV of the car.

Some of my colleagues opted for Finance lease and they would be paying only 75 % through EMI and would have to pay the remaining 25% of the total car value for keeping the car along with the similar benefits i got. The only exception being, they have to renew the car insurance every year.

Finally I ended up buying a certified 2006 Hyundai Accent in good condition from Trident Hyundai!!!
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Old 3rd September 2012, 15:04   #140
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Hi guys,

This is a "lease or buy from own funds" question.

Joining a new company which has a car policy wherein Iíll be eligible for a car allowance of 45K PM. I can either ask the company to lease a car for me for this amount or take this amount (-Income Tax) as part of the salary. So the options I have are:

Option 1 : From what I hear, monthly lease rental is ~2800 per lac per month. This would mean I can ask the company to lease a car worth 16 lacs or so. This limits my choice to Civic/Corolla territory.

Option 2: I can probably buy a 3 year old used Accord/Camry/Passat for 12-13 lacs. My funds are currently in FDís earning 5-6% PA (after tax) and if I buy the car with these, I stand to lose ~72k per year. But I can claim ~3.5 lacs per year (after income tax) as car allowance from my company. Assuming that the servicing and maintenance of a used car is 60K per year (unless Iím terribly unlucky), I still stand to gain substantially if I buy a used car with my own funds. And it would be a bigger, better car than the civic/corolla! On the flip side, however, it will be a "used" car with it's own obvious risks.

Based on the above, option 2 seems to be the way to go for me. Any flaws in the argument or calculations?

Regards
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Old 17th September 2012, 14:44   #141
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Hi friends,

I got a quote for Duster from ALD through my company car lease program. Residual value is 68% of basic price at the end of 3 years which i can pay and purchase the car in my name. The calculation is in the enclosed excel sheet with all the formulas. Would request your expert analysis to see if i should take this route or go through normal financing option. I get the EMI outflow deducted from my CTC and can save tax. Also i get 15K per month for fuel + maintenance +Driver that also is tax free. Insurance is taken care by ALD.

What about this hypothetical situation, if the car is lost i don't get anything from insurance and whatever i paid i lose??

Also is the benefits on Operating Lease numbers bloated up? Which option should i chose?

Thanks, Prakash.
Attached Files
File Type: xlsx Duster.xlsx (19.1 KB, 2194 views)
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Old 26th September 2012, 18:52   #142
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Originally Posted by prakasse View Post
Hi friends,

I got a quote for Duster from ALD through my company car lease program. Residual value is 68% of basic price at the end of 3 years which i can pay and purchase the car in my name. The calculation is in the enclosed excel sheet with all the formulas. Would request your expert analysis to see if i should take this route or go through normal financing option. I get the EMI outflow deducted from my CTC and can save tax. Also i get 15K per month for fuel + maintenance +Driver that also is tax free. Insurance is taken care by ALD.

What about this hypothetical situation, if the car is lost i don't get anything from insurance and whatever i paid i lose??

Also is the benefits on Operating Lease numbers bloated up? Which option should i chose?

Thanks, Prakash.
Hi,

My suggestion would be to go for a bank loan option.

Reasons:
1) If you are buying a Duster you might not change your car in a short span of 3 years. Just in-case u want to retain the car you will have to buy it from your Company. This means that you would be second-hand owner of the car. So, this is a negative. If you plan to sell the car after 5 years (total), it will be third hand (as per records). Hence, the resale value is significantly reduced. Anyways Renault cars do not have a good resale value yet.
2) Your EMI outflow is almost same for both the cases. You are at least the owner of your vehicle in the Bank loan option.
3) Residual value (RV) of 68% is less (considering its just 3 years span)
4) Cost of ownership in Bank Loan is bloated in my opinion.

Note: I am not an expert on this subject, but the leasing model in India has not taken off due to high financial costs / lack of ownership / low residual value.
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Old 27th September 2012, 12:42   #143
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

I have had experiences/information on following the modes of getting a car:

Option 1: Company Car Lease

- The car is in the company's name
- The employee doesn't pay anything for owing a new car within the specified limit
- The RV of the car is typically 20-25% after the lease period
- The EMI is calculated on the on-road price, and doesn't figure in the pay slip. So gets completely removed from the taxable income
- Additionally companies offer a tax benefit on the fuel and maintenance costs of the car
- Insurance is deducted from the employee's pay from Year 2. Again, doesn't figure in the payslip so gets removed from the taxable income. Maintenance is employee's responsibility.
- On completion of lease, the employee also pays a FBT along with the residual value, and the car gets transferred to the employee's name.

In my view, this is a very good option if one is not changing jobs during the lease tenure.

Option 2: Operating Lease

- The car is in the leasing company's name
- The employee doesn't pay anything for owing a new car within the specified limit
- The RV of the car is very high, typically 60%+ after the lease period
- The EMI is calculated on the on-road price, and doesn't figure in the pay slip (though I'm not 100% sure on this, individuals need to check case by case).
- Additionally companies offer a tax benefit on the fuel and maintenance costs of the car
- Insurance is not deducted from the employee's pay during the lease period. Maintenance is also taken care of by the leasing company.
- On completion of lease, the employee has to return the car or buy it back as per the residual value determined by the leasing company. I have seen leasing companies discouraging the buyback, since they possibly get a higher price outside.

In my view, this makes sense only if one does not buy back the car. Since the total cost of ownership for a 6+ Lakh car often becomes 10+ because of the high RV. Even if one returns the car, the money outflow is typically more than the on-road price of the car and yet at the end of lease one does not own the car.

Comparing the above, Option 1 makes more sense than Option 2. For me, Option 2 doesn't male sense at all! :-)
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Old 5th November 2012, 17:12   #144
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

My company offers a three way car hire scheme. In this, the car is bought by my relative (lets say my dad-in law). The company hires the car from him and is provided to me for use. Depending upon the car and salary levels, the company pays 20K to 40K to the person who leases the car. Plus, any petrol expenses are reimbursed.

Now setting aside the tax implications (which is mainly income tax) for the person leasing out the car and the Perqusite Valuation tax implication for me (which would be the least given current rules), do you see any other implication in this scheme?

I am more concerned about the registration and insurance. Does the registration need to be a commercial registration and similarly will a normal car insurance policy suffice?
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Old 6th November 2012, 23:40   #145
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Nice thread initiated by GTO.

I was planning to go for a new car and was looking for options (about the car), now I will have to look for options (about finance & lease).

I have a few queries which can be answered by some of the senior fellow BHPians like @GTO, @TSK1979, @shuvc, @condor, @ajitkumarlb and other experts.

1. I am a consultant work for different companies at individual capacity. Self employed without any company and all. Can I get a car on lease?
2. I am located in Bhubaneswar, I doubt any leasing company is out here. If any of you happen to know any company in Bhubaneswar, please let me know.
3. In case of the death of the lessee, what will happen to the car and the payout?
4. What happens if I donít want to buy the car at the end of the lease period?
5. Please correct me if I am wrong: Normally if the car belongs to a company then the driver should have a professional license.
6. Any legal problem with regard to third party and owner damage claims in case of any accident.

Will be thankful for your help.
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Old 3rd December 2012, 21:04   #146
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by Tats07 View Post
I have had experiences/information on following the modes of getting a car:

Option 1: Company Car Lease
---------
--------
Option 2: Operating Lease
-------
-------

Comparing the above, Option 1 makes more sense than Option 2. For me, Option 2 doesn't male sense at all! :-)
+1 to that, Unfortunately the first option through truly beneficial is becoming a rarity and the second option (even with all the tax breaks) is fishy at best.

I would rather call option 2 as "Company car donation scheme" because you pay for (the ex showroom value of) the car and donate it to the leasing company after 3 years. (or buy back at ridiculously high RV)

Last edited by for_cars1 : 3rd December 2012 at 21:07.
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Old 19th December 2012, 10:28   #147
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Hi,

I got a quote from ALD for Company Lease. The mileage is restricted, Need to return the car back in 3 years or but it the market value.

Need your suggestion. Is this better ( tax saving of 30%) or go for bank loan

Lease Amount : 10.2 Lacs
EMI : 25414
Term : 3 years
Mileage : 45K

Last edited by Marlon : 19th December 2012 at 10:32.
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Old 19th December 2012, 11:29   #148
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by Marlon View Post
Hi,

I got a quote from ALD for Company Lease. The mileage is restricted, Need to return the car back in 3 years or but it the market value.

Need your suggestion. Is this better ( tax saving of 30%) or go for bank loan

Lease Amount : 10.2 Lacs
EMI : 25414
Term : 3 years
Mileage : 45K
Hi Marlon, i too have a car lease with ALD and the above quote looks very beneficial.

Please be aware that car lease offers you better tax benefit (including tax benefit on Driver salary and Fuel reimbursements). However, please bear in mind that you end up paying a bomb incase you terminate the lease halfway.

ALD has something called an Optiflex Matrix which gives you the termination rates at various intervals (km and monthwise).
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Old 19th December 2012, 11:59   #149
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by Marlon View Post
...The mileage is restricted, Need to return the car back in 3 years or but it the market value...
Marlon,

If I am reading it right:

You have to return the car at the end of 3 years

OR

BUY it at the market value?

Is that right?

If that is the case you may not benefit much as Market value might be couple of lakhs yet to buy after 3 years and if you return back you would lose your 3 years leases amount/EMI in that case - this might be a good deal on very high value cars where your lease payout may be covered as perk by the company itself...

Another thing to watch out is the 45k limit based on your usage. Going by my usage of 40 km per week day use and then quarterly highway drive I would hit 45k in just over 2 years...
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Old 19th December 2012, 14:17   #150
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by ajitkumarlb View Post

BUY it at the market value?
You are right. Sorry it was a typo.

Am little concerned about mileage. I expect a 45 - 50 km daily office run. My theoretic estimation is 45K for 3 years. Assuming I go to office daily and no highway runs. Practically I think it would be a touch and go considering vacation and highway runs.

Worst case I exceed the limit by 5-10 K I would shell out approx Rs 10 -15K

Quote:
Originally Posted by bnzjon View Post
Hi Marlon, i too have a car lease with ALD and the above quote looks very beneficial.

Please be aware that car lease offers you better tax benefit (including tax benefit on Driver salary and Fuel reimbursements). However, please bear in mind that you end up paying a bomb incase you terminate the lease halfway.

ALD has something called an Optiflex Matrix which gives you the termination rates at various intervals (km and monthwise).
I understand there are benefits and risks associated with it. Hopefully the I stick on for another 3 years with the new company I am joining ( I have never worked more than 33 months in any company so far in my 8+ yrs of exp )

Can you provide some details about the termination cost.

Other Benfits:

Full On Road Funding
Insurance - built into Lease Rates
Free Road Side Assistance.


My other general queries.

1. How will wear & tear be considered. Eg. Tyre Change should I bear the cost ?
2. What happens when there is a part breakdown after warranty?

Last edited by Marlon : 19th December 2012 at 14:19.
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