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Old 27th March 2013, 17:25   #61
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Default Re: Car Lease Options from your Employer

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Originally Posted by swiftnfurious View Post
That's a neat explanation! Thank you! Now,

1. Is there a minimum salary requirement to avail a car lease? Or is it based on the policies of the organization where people above a certain designation get this benefit irrespective of their CTC? --> Generally the company would have various grades and they put a cap as to which grades are eligible for this the CLC.

2. Is there a max cap on "A" that's to be paid every year ?? You will not have the flexibility of paying more but will have to pay whatever numbers you would be given initially.

3. Are the policies (interest %, EMI & buy back terms) the same for every vendor? They may vary slightly depending on a few features here and there. Just like the variants in a car.

4. What if I leave the company before the EMI period ends and I don't want the car? You can definitely pre-close CLC but you will be losing lot of money. Else you will have to find a prospective buyer within your company who will meet the company's requirements to be eligible to participate under the CLC program. If your new company has their own CLC then you can transfer the lease program to their vendors.

5. Can I buy (even) a Nano with the car lease, clear all payment in one year and buy another car the next year under the same scheme? You can buy the Nano but generally you would not be able to save much income tax. The general purpose of opting for a car lease is to avail income tax relief. The sole purpose will be defeated as you might be able to save only a paltry few hundreds if you go for NANO. Generally CLC makes more sense for employees who fall in the 30% category.
Please find my responses in Bold
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Old 27th March 2013, 17:41   #62
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Default Re: Car Lease Options from your Employer

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Originally Posted by swiftnfurious View Post

1. Is there a minimum salary requirement to avail a car lease? Or is it based on the policies of the organization where people above a certain designation get this benefit irrespective of their CTC?
2. Is there a max cap on "A" that's to be paid every year ??
3. Are the policies (interest %, EMI & buy back terms) the same for every vendor?


4. What if I leave the company before the EMI period ends and I don't want the car?


5. Can I buy (even) a Nano with the car lease, clear all payment in one year and buy another car the next year under the same scheme?

1. Depends on Organization Policies
2.No. EMI Depends on your Lease Tenure and value of car.
3.No. There are two types of lease. One type is where you have to buy the after lease tenure by paying Residual Value. Other Type is the Operating Lease where you have a mileage cap and you need not buy the vehicle at the end of the term.
4.You need to close the loan even if you have to leave on a long term onsite opportunity.
5. Yes

There are other benefits which for which Tax benefits can be availed.
1. Higher Fuel Cost exempted from IT
Eg. For self - owned cars - the limit is Rs 1800 per month. For Leased Car the limit goes up to Rs 5700 per month after considering FBT

2. Cost of Driver Salary exempted from IT
Eg. For self - owned cars - the limit is Rs 900 per month. For Leased Car the limit goes up to Rs 7000 (approx) per month after considering FBT

3.Cost of Insurance and Maintenance exempted from IT.
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Old 27th March 2013, 19:22   #63
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Default Re: Car Lease Options from your Employer

Guys
I am in a fix. My company car lease interest rate is 13.75%. I was wondering if there is any benefit of income tax if the rate is so high ? Is my understanding correct ? The other catch is if I don't go for a lease I don't get to claim ANY amount under fuel. Should I go for a lease at such a high rate ?
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Old 27th March 2013, 19:48   #64
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We had a company car scheme which is no longer around. The cost was high but it made sense when investment opportunities were pretty good back in 2007. It was tax effective considering the fuel, driver and maintenance components.

Due to potential fraud issues, these components were withdrawn and we were given a tax protected lump sum. Add to that, fringe benefit taxes etc reduced the tax advantage and became a burden. Our company exited the scheme.

You also need to factor in that the government might also tax company cars even further in their quest to get easy revenues.
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Old 27th March 2013, 20:23   #65
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Default Re: Car Lease Options from your Employer

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Originally Posted by narayan View Post
Guys
I am in a fix. My company car lease interest rate is 13.75%. I was wondering if there is any benefit of income tax if the rate is so high ? Is my understanding correct ? The other catch is if I don't go for a lease I don't get to claim ANY amount under fuel. Should I go for a lease at such a high rate ?
The best thing is to workout with exact numbers. Here is an example:
Assume car cost = 8L on road.
If you don't go through Company car, and a depreciation of 10% every year, means the cost incurred over 3 years = 80k + 72k + 64k = 2.16L. Now, we all know the depreciation is more than 10% for the first 2 to 3 years, but I have ignored that for the time being.

Add about 20k + 18k + 16k for insurance over 3 years = 54k.

So apart from fuel, your total cost of ownership for 3 years, assuming you will sell away the car = 2.7lakhs (may be more depending on depreciation).

If you buy a company car, as discussed in the posts above, the advantage may of the order of 2Lakhs (2.16 Lakhs in my example) by way of Tax exemption and approximately about 1L for fuel. (In my previous example, I have quoted the Lease emi values for a 8.7L car). Now, these values WILL Vary for each and everyone, and I am just taking a very very typical example here. Now, the depreciation will be the same, may be more as you will be the second owner even if you plan to sell it right after 3 years. So, lets take a little extra and say 3.00L is your cost of ownership assuming you will sell it away. But you saved nearly 3L by way of tax exemption. So net cost of ownership is very less (near 0) if you buy a high resale value car.

For example, if you buy a dzire for 8L, and sell it at 5.5L after 3 years, you lose 2.5L - is that fair enough? And you probably have saved the same on tax in the same period. If you play it right - you will get a near 0 cost of ownership.

What can go wrong:
1. Resale heavily depends on the car. Not all of us might "want" to buy a Dzire or Swift.
2. The risk is on you. What if the resale value plummets down.
3. The interest rate is higher - so need to factor in that thing.
4. There will be some charges that the leasing company will need to make them profitable - this should be calculated too.
5. Perquisite tax of about 20 to 30k per year (I don't remember the rule exactly).
6. The comparison is good when you compare buying 2 new cars, with and without company lease option. However, most of us will have a car already and the comparison is more likely to be about
- To buy a new car
- To keep the old car.
So, the calculation in this case is more complex, and needs to be done by, taking into account depreciation of both cases, cost of maintainance, insurance, resale etc. not very easy, but in my case, I replaced my Indica with a Quanto and I feel it works out very well.

In other words, till you put numbers on an XL sheet, with your office policy in place, its hard to say one way or the other - specially when comparing with an existing car.

For the query on the high interest rate, just think how much will a 3% extra interest mean? For the first year it is about 24k (simple interest calculation). For 3 years, it may be around the range of 50 to 60k. As long as you can confirm with numbers that can you retrieve something more than 60k, it looks to be ok to go ahead in spite of the high interest rate.

Again, I am not suggesting that you go ahead with the car, but suggesting that you put the numbers on an XL sheet and then see how it compares.

Last edited by deep_bang : 27th March 2013 at 20:33.
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Old 28th March 2013, 14:23   #66
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Default Re: Car Lease Options from your Employer

I'm in a bit of a dilema. Hope you guys shed some light.

Two years back when I was upgrading, my company never had a car lease option (atleast not for our division). Hence I ended up taking the usual route through bank finance.

Now, our HR has suddenly woken up to the tax benefit potential on car lease and are offering us the car lease option.

I'm quite clear I dont want another car. Is there an option to lease my car to the co-owned car lease. What are my other options, if any?
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Old 28th March 2013, 16:43   #67
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Default Re: Car Lease Options from your Employer

I am planning for car lease. As per the lease plan, you have to pay an EMI of Rs 2892 per lac for 36 months and pay 25% residual after 36 months (interest rate is 13.5%). However, using standard EMI calculator, the EMI 3394.

How the leasing companies are calculating EMI?
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Old 28th March 2013, 18:51   #68
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Default Re: Car Lease Options from your Employer

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Originally Posted by ambadan View Post
I am planning for car lease. As per the lease plan, you have to pay an EMI of Rs 2892 per lac for 36 months and pay 25% residual after 36 months (interest rate is 13.5%). However, using standard EMI calculator, the EMI 3394.

How the leasing companies are calculating EMI?
Calculate the EMI on ex-showroom price and not on the OTR. Usually the EMI for a CLC is based on ex-showroom price.
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Old 28th March 2013, 19:03   #69
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Default Re: Car Lease Options from your Employer

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Originally Posted by shivasuma View Post
Calculate the EMI on ex-showroom price and not on the OTR. Usually the EMI for a CLC is based on ex-showroom price.
Thanks shivasuma.

let me clarify. i just calculated EMI for a hypothetical value of 1 lac. Company lease quotes 2892 for 36months@13.5%. For the same 1 lac, EMI calculater gives an EMI 3394 for 36months@13.5%.

My question is why the company lease EMI is lesser than regualar EMI? are the reducing some percentage from the car value and calculating EMI? (considering 25% residual value)
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Old 28th March 2013, 19:50   #70
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Default Re: Car Lease Options from your Employer

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Originally Posted by ambadan View Post
Thanks shivasuma.

let me clarify. i just calculated EMI for a hypothetical value of 1 lac. Company lease quotes 2892 for 36months@13.5%. For the same 1 lac, EMI calculater gives an EMI 3394 for 36months@13.5%.

My question is why the company lease EMI is lesser than regualar EMI? are the reducing some percentage from the car value and calculating EMI? (considering 25% residual value)
When the EMI is calculated as you did, you take the initial value as 1L, final value as 0, and then calculate for the duration of 36 months. However, if you calculate with initial value as 1L, final value as 25k, then you will get the correct value. It will be however, a little less than 2892 which the company would have quoted. This is because, this amount includes:
1. Fleet management service
2. VAT on the above
3. Insurance component.

XL has a function called PMT which can be used to calculate when final value is non-zero.

Quote:
Originally Posted by shivasuma View Post
Calculate the EMI on ex-showroom price and not on the OTR. Usually the EMI for a CLC is based on ex-showroom price.
Well. I think this is incorrect (please correct me if I am wrong). When the fleet management company has funded for the entire car, it will treat the full value of car for the EMI. The reason why the EMI is lower is because of the reason I mentioned above. In Excel, there is a function called PMT which can be used to get the EMI. You can also give an initial value and final value to the PMT function to get the EMI, in case the final value is not zero.
This is how the EMI gets calculated.

How the 25% is arrived at - this depends on several factors including the market value of a particular car. The fleet management companies normally have an indicative resale price and this is usually applied on the ExShowroom price. However, like I said above, different companies do this math different ways.

Quote:
Originally Posted by arup.misra View Post
I'm quite clear I dont want another car. Is there an option to lease my car to the co-owned car lease. What are my other options, if any?
Usually companies allow adding used vehicles also to the fleet. However, in my company it is limited to a 2 year old car. So, please check with your company if they allow.

Disadvantages:
1. You will have to transfer the ownership to the company. (2nd owner car assuming you are the 1st owner).
2. After you buy back after 3 yrs or whatever it is, you will be the 3rd owner.
3. Valuation of the car is done by the company and may or may not work out well.

Last edited by deep_bang : 28th March 2013 at 20:00.
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Old 29th March 2013, 07:50   #71
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Default Re: Car Lease Options from your Employer

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Originally Posted by deep_bang View Post
When the EMI is calculated as you did, you take the initial value as 1L, final value as 0, and then calculate for the duration of 36 months. However, if you calculate with initial value as 1L, final value as 25k, then you will get the correct value.
This is an eye opener for me. I was under an impression that you have to pay EMI, on top of it pay 25%, and in turn you will get tax benefits.

Considering the above calculation, what I am going to loose is couple of % extra interest rate, perquisites of 1800/2400 PM, fleet management charge+tax. And will get tax benefit.

I think I should go for leasing. Only confirmation I needed is "whether I am going to continue in the organization for next few years?"

I am going to calculate break-even period for this lease. I.e., how many months i need to be in organization before foreclosure so as not to loose when compared to loan. Anyone tried this before?
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Old 2nd April 2013, 22:12   #72
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Default Re: Car Lease Options from your Employer

After vacillating for over a year, I finally took the plunge and bought a Figo tdci under my company's lease program. The only flip side is that I've to stick to the company for 4 years to reap the benefits.

Below are the details:-
  1. Provider is Kotak Mahindra
  2. Lease amount is ex-showroom quotation of Rs 5,70,279 and period of lease is 4 years
  3. Interest is 14.5% (ouch), but residual value is Rs 5703 (wow!)
  4. Monthly installment is Rs 15811..
  5. The company paid Rs 87089 towards road tax and also paid the insurance and registration charges. It will continue to pay insurance for the entire lease period, regardless of NCB being lost in claims, if any.
Now here are the tax-savings:-
  1. Installment of Rs 15811 works out to Rs 1,87,732 per annum.
  2. I'm entitled to Rs 45000 maintenance per year. Prior to taking this loan, my entitlement was zero.
  3. Chauffeur's reimbursment has increased to Rs 12500 per month from the prior limit of Rs 900.
  4. Fuel reimbursment has increased to Rs 12500 per month from the prior limit of Rs 1800.
Monthly tax savings on item 1 are Rs 4901 approx, item 2 Rs 1162, item 3 Rs 3596 and item 4 Rs 2736. Adding all this works out to Rs 12395. So out of an installment of Rs 15811, I am getting Rs 12395 in tax concessions. So net outflow is Rs 3415, and in 48 months I'll be paying Rs 163396 in total, apart from Rs 5703 residual value.



Please note that there might be some FBT that needs to be added also, but I am not sure of that rate. I shall update after getting that information.
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Old 3rd April 2013, 08:08   #73
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Default Re: Car Lease Options from your Employer

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Originally Posted by arup.misra View Post
I'm in a bit of a dilema. Hope you guys shed some light.

Two years back when I was upgrading, my company never had a car lease option (atleast not for our division). Hence I ended up taking the usual route through bank finance.

Now, our HR has suddenly woken up to the tax benefit potential on car lease and are offering us the car lease option.

I'm quite clear I dont want another car. Is there an option to lease my car to the co-owned car lease. What are my other options, if any?
You may want to check if this is possible with your company, and lease vendor. However, what I am sure of is that the car will need to be transferred to the company's name, and later when you buy it back from the company (not sure how the terms of your company are), you would be the third owner. Not everyone in the market understands this, when you plan on selling your car, and even if they do, they will use this as an excuse to lower the buying value.

IMHO, I feel getting into the lease option after having owned the car already for 2 years is not such a good option. BUT, you would need to do the math, before arriving at a decision here, and don't go by my opinion alone.
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Old 3rd April 2013, 08:28   #74
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Default Re: Car Lease Options from your Employer

Quote:
Originally Posted by arup.misra View Post
I'm in a bit of a dilema. Hope you guys shed some light.

Two years back when I was upgrading, my company never had a car lease option (atleast not for our division). Hence I ended up taking the usual route through bank finance.

Now, our HR has suddenly woken up to the tax benefit potential on car lease and are offering us the car lease option.

I'm quite clear I dont want another car. Is there an option to lease my car to the co-owned car lease. What are my other options, if any?
I agree with Benny.

Usually, you need to pay Wealth tax + tax on perks you get. Depends on company/program.

Also, keep in mind that this so called tax-benefit is valid till Govt. brings on GAAR. Once you get GAAR, there will be no benefit of tax savings.

GAAR should be coming any time soon.
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Old 4th April 2013, 15:54   #75
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Default Re: Car Lease Options from your Employer

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Also, keep in mind that this so called tax-benefit is valid till Govt. brings on GAAR. Once you get GAAR, there will be no benefit of tax savings.
Pardon my ignorance, but I do not understand the reference to GAAR, and its possible impact on personal taxes... can you please elaborate, possibly with a link? did you by any chance mean DTC?

Sorry for the off topic question
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