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Old 30th January 2017, 12:32   #211
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

To help people looking for a lease option.

I had taken a lease for my Ritz Zxi from my organization for 4 years. However after 1.5 years I decided to quit and relocate to Bangalore. Instead of closing the lease I transferred it to my personal name and kept paying the quarterly installments. Also the car was transferred to my name.

The interest was also reduced to 11% which i think is fine. There is a residual value was required to be paid of 15%, viz ~85k. I have however now closed the lease and the car is totally in name without hypothecation.

The car lease company was Orix. Magma also has the same option to transfer the lease in your personal name if you quit. No tax benefits though on the EMI payments.

Adding below a simple calculation how lease helps based on if I had continued the entire lease period for my Ritz Zxi.

Price of vehicle (Loan amount) : 553059 INR (excluding insurance)
Quarterly payments: INR 39900
Total of EMI payments: INR 638400 (4yrs or 16 quarters)
Residual Value @ 15%: INR 83000
Sub-Total A - Payment made towards the car: INR 721400

Total amount non taxable/ year: 159600(EMI) + 162400 (Maintenance, Fuel, Driver, etc) = INR 300400 / year since INR 1800 will taken taxable every month
Tax saving per year @ 30%: INR 90120
Sub-total B: Amount of Tax saved over 4 years: INR 360480

Total cost of car, A-B = 721400 - 360480 = INR 360920
Savings against car bought in cash: 553059 - 360920 = INR 192139

If you buy with normal bank loan you will need to pay not only the above tax of INR 360480 but also the interest rate additionally.

Also kindly note, residual value may vary with organizations, however I am sure it would still help save quite a lot.

I would also like to add that Lease is a very good option if you NEED to buy a car. Not a tax saving option since it is a depreciating asset. To save tax look elsewhere :-)

Hope this helps !

Last edited by Altocumulus : 30th January 2017 at 12:52.
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Old 30th January 2017, 13:42   #212
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by Altocumulus View Post
To help people looking for a lease option.

I had taken a lease for my Ritz Zxi from my organization for 4 years. However after 1.5 years I decided to quit and relocate to Bangalore. Instead of closing the lease I transferred it to my personal name and kept paying the quarterly installments. Also the car was transferred to my name.

The interest was also reduced to 11% which i think is fine. There is a residual value was required to be paid of 15%, viz ~85k. I have however now closed the lease and the car is totally in name without hypothecation.

The car lease company was Orix. Magma also has the same option to transfer the lease in your personal name if you quit. No tax benefits though on the EMI payments.

Adding below a simple calculation how lease helps based on if I had continued the entire lease period for my Ritz Zxi.

Price of vehicle (Loan amount) : 553059 INR (excluding insurance)
Quarterly payments: INR 39900
Total of EMI payments: INR 638400 (4yrs or 16 quarters)
Residual Value @ 15%: INR 83000
Sub-Total A - Payment made towards the car: INR 721400

Total amount non taxable/ year: 159600(EMI) + 162400 (Maintenance, Fuel, Driver, etc) = INR 300400 / year since INR 1800 will taken taxable every month
Tax saving per year @ 30%: INR 90120
Sub-total B: Amount of Tax saved over 4 years: INR 360480

Total cost of car, A-B = 721400 - 360480 = INR 360920
Savings against car bought in cash: 553059 - 360920 = INR 192139

If you buy with normal bank loan you will need to pay not only the above tax of INR 360480 but also the interest rate additionally.

Also kindly note, residual value may vary with organizations, however I am sure it would still help save quite a lot.

I would also like to add that Lease is a very good option if you NEED to buy a car. Not a tax saving option since it is a depreciating asset. To save tax look elsewhere :-)

Hope this helps !

Thanks for your insights.


I also have a lease car from my company (partner is Leaseplan/Salaryplan) since last 3 years and my lease is due to end in a couple of months.

Now i am in some kind of Dilemma.

As i understand, after the end of leasing period, i have following options:

1. Return the car to Lease partner
2. Get the car transferred to my name by paying residual value and retain the car (it has only run 16000 kms due to my low running and travelling)
3. Sell the car directly to a third party. I will save on paying the residual value myself and the Sale price - Residual value i can cash in to buy another car (on lease ofcourse).

I have a doubt about point 1 - if i decide to "return" car to leasing partner - will the leasing partner pay me the market value of the car (minus the residual value of course) ?

And, is option 3 - selling the car directly to a third party (the car is currently in employer's name) - even possible?
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Old 30th January 2017, 13:52   #213
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Thanks, below are my answers

Quote:
Originally Posted by DCEite View Post
Thanks for your insights.
I have a doubt about point 1 - if i decide to "return" car to leasing partner - will the leasing partner pay me the market value of the car (minus the residual value of course) ?
No they won't. Even if they do by chance they normally they sell to used car dealers, at throwaway prices as long as it is more than your residual value. Not a good option even if it is available.

OT: You can get really awesome cars from the leasing guys for cars which were given back after an Operating Lease. People donot generally give back on a finance lease.

2 examples which I arranged for a couple of friends in the last 6 months

2011 Honda Civic VMT : 28k kms for 3L
2012 Honda City VMT (the one with cruise control) : 4L

Quote:
Originally Posted by DCEite View Post
And, is option 3 - selling the car directly to a third party (the car is currently in employer's name) - even possible?
This depends on your organization not the lease company. If your company allows you can.
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Old 1st February 2017, 16:24   #214
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by mukeshgoel View Post
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
Quote:
Originally Posted by wanderluster View Post
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.
Quote:
Originally Posted by DieselDon View Post
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.

Bumping an old topic related to GAAR.

As we know now, government is going ahead with GAAR implementation from coming April.

How would this impact the car lease business in India? Specifically - corporate car lease plans offered by employers in partnership with leasing companies, where the car is leased to employee by the leasing company but the vehicle itself is in the name of the employer - with tax benefit on EMI part (completely written off from salary slip) and exemption of tax on the Fuel/maintanance.
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Old 3rd February 2017, 11:58   #215
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Originally Posted by DCEite View Post
As we know now, government is going ahead with GAAR implementation from coming April.
I had the same question. But is it officially confirmed that this would be implemented from April 2017? Takes away one of the very few benefits that a salaried individual had if applied to Individuals
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Old 3rd February 2017, 12:03   #216
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by DCEite View Post
Bumping an old topic related to GAAR.

As we know now, government is going ahead with GAAR implementation from coming April.

How would this impact the car lease business in India? Specifically - corporate car lease plans offered by employers in partnership with leasing companies, where the car is leased to employee by the leasing company but the vehicle itself is in the name of the employer - with tax benefit on EMI part (completely written off from salary slip) and exemption of tax on the Fuel/maintanance.
Quote:
Originally Posted by vsrivatsa View Post
I had the same question. But is it officially confirmed that this would be implemented from April 2017? Takes away one of the very few benefits that a salaried individual had if applied to Individuals
Well, they are yet to issue proper guidelines about the ambit of GAAR. But on the face of it, they are defining it as anything done solely with the motive of reducing tax can be covered under GAAR and then it lies on the assessing officer to interpret the transaction.
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Old 12th February 2017, 23:35   #217
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Well, they are yet to issue proper guidelines about the ambit of GAAR. But on the face of it, they are defining it as anything done solely with the motive of reducing tax can be covered under GAAR and then it lies on the assessing officer to interpret the transaction.
I have been checking multiple sources for any information on the GAAR implementation and Car Lease - so far no one seems to have any idea. I spoke to LeasePlan company representative as well and they seem to say they have not received any intimation as yet. If Govt. plans to go ahead with the Implementation by 01-April then don't they need to issue more details soon?
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Old 13th March 2017, 16:06   #218
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Quote:
Originally Posted by Altocumulus View Post
To help people looking for a lease option.

I had taken a lease for my Ritz Zxi from my organization for 4 years. However after 1.5 years I decided to quit and relocate to Bangalore. Instead of closing the lease I transferred it to my personal name and kept paying the quarterly installments. Also the car was transferred to my name.

The interest was also reduced to 11% which i think is fine. There is a residual value was required to be paid of 15%, viz ~85k. I have however now closed the lease and the car is totally in name without hypothecation.
Is this possible during the lease term. I mean, assuming I am not quitting the organization but want to transfer the lease in my personal name and also get the reduced interest rate/lesser EMI ? I will not get tax benefits but reduced amount and car gets transferred to my name.

Also, i was working with my lease company to check an option for foreclosing the lease but the challenge is that to foreclose the lease, they are adding a VAT (more than 12%) + penalty + TCS + Service tax. Is that how it works ? If that's the case then lease closure is a pain because you end up paying more than the value of the car in used car market and all the benefits you had till then gets wiped out. I tried clarifying this with the company but no luck. The VAT and other components are very high, unfortunately.
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Old 13th March 2017, 19:16   #219
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Originally Posted by sunishsamuel View Post
Is this possible during the lease term. I mean, assuming I am not quitting the organization but want to transfer the lease in my personal name and also get the reduced interest rate/lesser EMI ? I will not get tax benefits but reduced amount and car gets transferred to my name.

Also, i was working with my lease company to check an option for foreclosing the lease but the challenge is that to foreclose the lease, they are adding a VAT (more than 12%) + penalty + TCS + Service tax. Is that how it works ? If that's the case then lease closure is a pain because you end up paying more than the value of the car in used car market and all the benefits you had till then gets wiped out. I tried clarifying this with the company but no luck. The VAT and other components are very high, unfortunately.
You can foreclose the lease by the taking a used car loan or personal loan. However, like you said the penalties are very high. It's better you wait for the GST implementation and then look at closing the lease.

Like I mentioned before, lease works very well if you go through the entire tenure of the lease, where it is even cheaper than buying the car in cash. If you foreclose or leave the organization in between it is not so beneficial. That is why I didn't opt for a lease with the new car I got. My new organization has only 3 year lease option, residual value is 25% and very high penalties. Even if I am transferred, I would require to close the lease. For a city the EMIs would have been very high and I would have been locked in Bangalore.

Last edited by Altocumulus : 13th March 2017 at 19:22.
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Old 17th March 2017, 23:27   #220
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

It has been more than a month since my last post on the topic of GAAR and Company Car Lease. I still have not heard back and not much info available on Internet also. Any updates on this? With April 01 less than 2 weeks away - I am guessing GAAR will be implemented mainly for companies and the Car Lease may not come under the ambit of GAAR.

Last edited by vsrivatsa : 17th March 2017 at 23:28.
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Old 10th June 2017, 19:18   #221
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Another twist - effect of gst on lease : http://m.economictimes.com/industry/...w/59077439.cms

Not sure I quite follow the net effect. Does this mean our end payment increases? Or the EMI as well?
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Old 22nd June 2017, 19:49   #222
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

We have an email today from our company car lease team that we would be paying more. Eg: for a car with an engine that is more than 1200CC, the increase in monthly lease payment is close to 25%. They have given us the option to exit the lease.

Quote:
Originally Posted by quadmaniac View Post
Another twist - effect of gst on lease : http://m.economictimes.com/industry/...w/59077439.cms

Not sure I quite follow the net effect. Does this mean our end payment increases? Or the EMI as well?
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Old 23rd June 2017, 14:30   #223
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

Read this: http://www.mycarhelpline.com/index.p...8635&Itemid=78

For me, I'm in a huge soup. My EMI went from 33k (pretax) to 42k. Old EMI - VAT (14.5%) + GST (43%). This is a deal breaker :(
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Old 23rd June 2017, 22:20   #224
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Originally Posted by quadmaniac View Post
Read this: http://www.mycarhelpline.com/index.p...8635&Itemid=78

For me, I'm in a huge soup. My EMI went from 33k (pretax) to 42k. Old EMI - VAT (14.5%) + GST (43%). This is a deal breaker :(
There is no reply yet from the government on the plea by Lease plan companies on the transition of VAT to GST for existing lease.

Lets wait for government's reply/reaction - until then one need not worry i think. about double taxation.

Last edited by DCEite : 23rd June 2017 at 22:23.
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Old 24th June 2017, 19:03   #225
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Default Re: ARTICLE: Lease OR Loan? Which EMI is better for you

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Originally Posted by DCEite View Post
There is no reply yet from the government on the plea by Lease plan companies on the transition of VAT to GST for existing lease.

Lets wait for government's reply/reaction - until then one need not worry i think. about double taxation.
I think it's not so simple. The GST rules apply from July 1st. And this government has decided to meet the lease companies on June 30th


Which means that if they do not agree to input tax credit, it will be too late for foreclosure. Reason: foreclosing today attracts 14.5% VAT. Foreclosing on July 1st will attract 43% GST (for my class of vehicle).

If this is not I don't know what is.
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