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Old 26th June 2011, 22:23   #16
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Default re: Car Lease Options from your Employer

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Originally Posted by pjbiju View Post
What about fringe benefit tax? Who is going to pay that? This is a monthly amount over and above the EMI. Check if your company will pay this amount or you have to pay it.

Do you also get to reimburse maintenance and fuel cost? You will save tax on that amount too. I guess it is currently capped at Rs. 5000/month.

Also once you get the vehicle registered in your name after the lease, you can get the registration amount refunded, after deducting the amount for the years under which it was used with the company registration.

There is no FBT now. Rs1800/month or Rs 2400/month is taken as the perquisite value depending on the cc of the car.
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Old 26th June 2011, 22:25   #17
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Default re: Car Lease Options from your Employer

Please do some research on the draft DTC (Direct tax Code) before plunging into this, DTC is less than one year away If I remember.

Currently there is VAT + ST on the lease amount. In case of preclosure of car lease there is pro-rate VAT recovery too. However if you stick thru the lease duration there is min. 15 % saving on just Car PLUS saving in fuel and drivers salary depending upon company benefits.

Last edited by ownerofazkaban : 26th June 2011 at 22:28.
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Old 27th June 2011, 00:09   #18
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Default re: Car Lease Options from your Employer

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Originally Posted by DukeSan27 View Post
Assuming you are going buy, and options are loan vs lease, and you are in 30% tax bracket, then lease is a no-brainer.

Here is my working:

Car on-road - 678,000 (this would be approc for Bangalore, not sure for Chennai)

Lease EMI - 13,893
Residual Amt - 113,607


Loan Amount - 678,000 (100% on-road funding, whoever does that)
Interest rate - 10% (don't know the current rate, but my guess is 10% would be a steal today)
EMI - 17,207


At the end of four years,
Total Lease payment - 573,879 (adjusted for tax)
Total Loan payment - 843,022

If you quit your company at the end of 12 months and need to foreclose lease, or foreclose loan:
Total Lease payment - 728,425
Total Loan payment - 752,427

...at the end of 24 months
Total Lease payment - 676,910
Total Loan payment - 799,861

...at the end of 36 months
Total Lease payment - 625,394
Total Loan payment - 830,641

So beyond 12 months, your savings grow.

If you last 24 months, you will actually end up paying approximately only the on-road price.

Note: I have not adjusted the pre-req tax, but that will not make much difference. Foreclose does not account for any penalities (may 2%, so not significant).

BTW: Those rental rates are exactly what is there in my company
I made a mistake with the calc, the comparison should have been ex-showroom, since that's what the lease rental was based upon. The numbers are much more closer now.

Car ex-showroom - 565,361

Lease EMI - 13,893
Residual Amt - 113,702


Loan Amount - 565,361
Interest rate - 10% (don't know the current rate, but my guess is 10% would be a steal today)
EMI - 14,339


At the end of four years,
Total Lease payment - 573,875 (adjusted for tax)
Total Loan payment - 688,273

If you quit your company at the end of 12 months and need to foreclose lease, or foreclose loan:
Total Lease payment - 728,421
Total Loan payment - 627,000

...at the end of 24 months
Total Lease payment - 676,906
Total Loan payment - 666,528

...at the end of 36 months
Total Lease payment - 625,390
Total Loan payment - 692,176
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Old 27th June 2011, 18:09   #19
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Default re: Car Lease Options from your Employer

These scemes are really good considering that the EMI you pay are not taxable and you dont leave the company before the whole amount is paid! . One of my friend bought a Honda City in similar scheme and opted for 3 years repayment option. At the end of 1 year he decided to quit the company. He had to get into too many hassles to convert the car in his name and to obtain the NOC from RTO as he was shifting to some other city.

Not sure if your company provide but there are shemes of obtaining tax exemptions on the car fuel Maintenance and driver's salary (if you have any driver) which some of the companies provide. You can check the same with your company HR/Admin.

Last edited by benbsb29 : 27th June 2011 at 18:18. Reason: Font tags removed from post.
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Old 29th June 2011, 23:19   #20
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Default re: Car Lease Options from your Employer

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Originally Posted by Spectre View Post
Hi,

I'm planning to get a new car probably Swift Vdi. My company providing me the lease option as below. I'm not sure whether the deal is good or not. Please suggest.
.
Since i have a car lease let me give you my 2 cents

You are just an User of the Car. owership will be with Company, end of the lease you have transfer it to your name and you will become 2nd owner :(

Company can change the policy/Vendor any time , once you are in no going back ( when i choosed mine Residual Value was 10% now they increased it to 25%)

Watch out for DTC, its just months away.


Assuming that you are at 30% income tax rate & You dont have to pay anything (reg, road tax, etc) and choosing 4 year lease

Residual Value is calulated on Ex-shoroom price
EMI is calculated on leased amount not Ex-showroom (this include road tax, etc)


1) You have to add 12.5 % VAT on Residual Value (TN)113072 * 12.5 = 14134.
2) The moment you choose for Lease your conveyance allowance become taxable 240/ per month =240*48=11520.00
3) You have to Pay the FBT swift comes under less than 1.6ltr cc car then (1800*30%) = 540 per month
= 540*48=25920
4) as you said if 13893 is your EMI then Take home impact will be 9725 (4167 will go from your income tax)

Your total tax savings = 4167*48=200016 - 11520 (2) -25920 (3) = 162576

Cost of the CAR

EMI = 48*9725 ( net salary impact ) = 466800
RV = = 113072
VAT = = 14134
Aditional tax (point 2 + 3) = 37440
Lease transfer = 2500 (90% goes as bribe)

-----------
633946.00

You will also save some money in Fuel reimb plan

foreclosure is a pain though if you are sure about sticking to the same company for next 4 years go for it.

Last edited by vvvinod : 29th June 2011 at 23:22.
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Old 30th June 2011, 01:58   #21
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Default re: Car Lease Options from your Employer

Lease schemes are primarily directed at employee retention ; serve the Company for the period of lease and you will benefit immensely(monetarily, of course)

On one side you stand to gain a straight 31% or so on EMI by way of Income tax benefits,

On the other side, you are psychologically on a low as you are staring at a big sum of money in case you leave

If you are a hopper,don't opt for this scheme

Think ten times before you take a call.
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Old 30th June 2011, 13:29   #22
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Default re: Car Lease Options from your Employer

let me add my two cents

Company won't allow you to give the initial down payment, For Eg: if I have one lakh cash in my hand I won't be able to take the loan for the rest of the amount, the company car lease amount should be for full on road price, they will not allow for partial re-payment, either close the complete loan or keep on paying till the end of the tenure. Most of the nationalized bank will allow partial re-payment, so that interest will be calculated on the remaining amount,

Company car lease interest rate will be higher than the outside as well

In company car lease the insurance policy will be taken by company, which may not be to our liking, For Eg: in our company as per the policy the insurance should be from the XXX, and I am not supposed to take the insurance from united india or oriental, again the policy premium is also not under our control, and no one asks whether the premium is ok or not, just get deducted from the monthly salary. Cash less claim facility may not be possible, for eg: in my swift if I get the policy from maruti, I can opt for cash less, but in case of private company this won't be possible, and I need to pay the bill at dealer and claim it separately for the re-imbursement

In summary think 100 times before going for company car lease, it is not so sweet option, once you are in, you are stuck, no way out.
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Old 30th June 2011, 13:40   #23
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Default re: Car Lease Options from your Employer

Our company recently launched (rather migrated) to this facility. Vendor here is quoting 32% of the on road value of the car at that time as the buy back value. However, they dont disclose the rate of interest up front. They are saying it will be strictly as per RBI guidelines. Not comfy with that statement.

Net net, as many have said above, It is a lucrative option for people who do not want to/can do a down payment or are sure to stick with the company for the said period. Net saving is not very high though. To add to it, companies give different advantages based on tenure/grade etc. e.g. in our company, Fuel and Driver charges are admissable only for a certain grade and above thus denieng more tax advantage to people below that grade. Consider all of this in your calculation.

OT - the earlier car plan of our company was a steal. You get someone to fill a form for you that he/she has leased his/her car to you. Company gives the rent to that person directly and then you take it back from the person. In the process, all this rent (upto 32000 a month) is taken off your taxable income. Alas, it isnt continued anymore.
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Old 30th June 2011, 18:36   #24
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Default re: Car Lease Options from your Employer

All in all, a company car lease is always beneficial. I have a company car for a few years now and its a different experience than owning a personal car.
1. The fleet management company will take care of the maintenance, like picking the car, getting it to the showroom and returning the car once it is done etc. That saves a huge time especially if you do it regularly (which is suggested)
2. The tax benefit is good. You save on your total taxable income and depending on your tax bracket you sometimes land up in a lower bracket (as the annual EMI is out of your total income statement) not sure if that will help you
3. Depending on the car you buy (usually) the book value depreciation is far more than actual market value depreciation. That way you gain and you car is no more a liability its a profit for you
4. If the company also pays for your fuel (pre tax) then you fuel is cheaper by 30%, man that not a relief?
5. Residue value is always on the book value depending on the company it varies b/w 15 - 25 % usually if you want to sell the car you take an advance from the prospective buyer and pay the residue and then keep rest of the money
6. There is some factor or safety during a post accident scenario as some companies also contribute to a fraction the cost incurred for repairs (or they have a different deal with the insurers to provide more coverage like plastics and glass, which is not normal for personal car)
7. If you intent to sell the car then I have seen that my colleagues who have done it say that they were able to sell it for a premium as it was a "company car". Meaning the buyers feel that car owned by the company would have taken care of it better in maintaining it as they do not worry about the cost of maintenance
8. Even if you keep the car the total money that you would have paid as EMI + Residue will work out to be much lesser than the actual cost of owning it personally + if you company provides fuel allowance then it reduces the TCO further

The other sides are
1. Some companies have a cap on the maximum ex-showroom price of the car (so you may not be able to buy what you want!)
2. Changing the company will have a new dimension to be taken care of!
3. Companies sometimes ask for the total mileage driven so far (for corporate carbon emission reporting or otherwise ) and may times question why you have a larger number on it when it is given (technically) only for office computing (not all companies) but some I know do. Its really irritating to give an explanation to some one on why you love to drive!
4. I case of an accident of the car other than you (the employee) there may be questions on the justification on why someone else was driving the "company car". Again not a general practice, but possible. That hinders your confidence you let your friends, relatives take if for a spin in your absence

But all in all its a sure go ahead! Like I have said I have a company car so I can tell you the experience - the juice is worth the squeeze!
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Old 30th June 2011, 21:03   #25
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Default re: Car Lease Options from your Employer

Well, it depends on tax slabs on which employee resides, lease tax, interest rate offered etc, In my case i found it to be beneficial
Below is the calculation

Total founded = 649278
EMI = 15407
Yearly =184884
Tax Saving / year = 30 % of the EMIs =55465 ( since my upper limit resides on 30 %)
Actual EMI paid / Year = (Total EMI - Tax savings ) 129418
Total EMI in 4 Years =517675
residual value need to be paid for Transferring the vehicle after 4 years = 113153
Total cost of the vehicle = 517675 + 113153+60000 ( Paid from my pocket for insurance + Road tax) after 4 years = 690828 RS
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Old 1st July 2011, 09:55   #26
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Default re: Car Lease Options from your Employer

One thing you would want to consider is : Are you going to be in the company for the next X years ? Well, we can't predict everything accurately, but if you are itchy about moving out in the next 18 months, a company leased car may not be a good option. People tend to form emotional bonds with their machine and a forced separation is not a sweet deal.

A few more points you'd want to consider:
- The Residual value you have mentioned seem to be on the higher side. Not sure why.
- Read the fine print. There are many things you are not allowed to do with a company-leased car, such as indulge in motorsports
- Read the fine print. If you have other travel options provided by your company such as bus transportation (or a travel allowance), that may cease to be valid, partly or whole.
- Do the "Cash in hand" calculation. Because of the high % charged by the loaning company (your company will outsource this to a company like Religare etc), the cash in hand at the end of the month is a hard hit. Add to it, the fuel cost and the amortised residual value (RV/no of months of lease). Will you be comfortable with the outflow. Note that the tax savings is a "notional" amount; i.e you save, you don't earn anything extra.
- The above will heavily influence your tenure.
- In general, the following seem to be good pre-conditions for a company leased car:
* the company is paying for your roadtax + insurance, car lease is a good scheme.
* you are in a income bracket where you are mostly expended all your tax saving options (Sec 80 C/CC etc)
* you will be in the company for sometime as far as you can foresee
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Old 1st July 2011, 12:05   #27
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Default re: Car Lease Options from your Employer

There are many flavours of the Company Leased Vehicle Scheme in the corporate segment. However, the main purpose is :

1. Employee Retention (doubtful).
2. Tax savings for the employee as well as organisation

In case the lease plan offered by the organisation also provides tax benefits on the fuel and maintenance of the car (as in my organisation's case), it dramatically takes down the effective cost of car ownership at the end of the tenure.
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Old 1st July 2011, 13:15   #28
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Originally Posted by srishiva View Post
If you consider the tax savings, it should be equivalent to buying the car without paying interest on your EMIs. I know that it works similar to that from some of the leases that I have known.
Yes. This is true. I got my car on lease and in the end I spent excatly the OTR price out of my pocket. In additions I had tax savings on petrol too.
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Old 1st July 2011, 13:27   #29
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fringe benefit tax is not very taxing :-) when you look at the net savings.
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Old 6th July 2011, 01:23   #30
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I am sorry if I differ with the popular opinion but I have always believed this to be a bad idea. Howsoever you may love your car it's a depreciating asset. Companies claim depreciation for cars on their payrolls and also get to retain employees so it's big gain for them. Please remember income tax saving investments are so that you can secure your and family's future by investing in your future. Here you don't invest any money for growth but rather pay high Emi every month on an asset that depriciates 30% the day it moves out of the showroom. Banks love it since they get to charge absurd rates and it's a safe bet. Companies love it since they get to claim depreciation and retain employees. Employee pays beyond his means since it's a 0 downpayment car. You have increasing costs of fuel and inflation to worry about. 12-13K Emi for car is criminal. For swift wait for some time do 50% downpayment and then buy your new car yourself. New swift is on the way anyway so use that as motivation.
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