Category Archives: LEASING AND HIRE PURCHASE

Hire Purchase as Sale

Hire Purchase as Sale Hire purchase, though not sale in the true sense, is deemed to be sale. Such transactions are per se liable to sales tax. The sales tax is payable once the goods are delivered by the owner (hire vendor) to the hirer (hire purchaser), even if the transaction does not fructify into a sale. There is no provision for the refund of sales tax on an unpaid instalment. In other words, full tax is

Assessment of Owner (Hire Vendor)

Assessment of Owner (Hire Vendor) The hire/hire charge/income received by the hire vendor is liable to tax under the head profits and gains business and profession, where hire purchase constitutes the business (mainstream activity) of the assesses, otherwise it is taxed as income from other sources. The hire income from house property is generally taxed as income from house property, Normal deductions (except

Tax Planning Hire Purchase

Tax Planning Hire Purchase The hire purchase transaction can be used as a tax planning device in two ways: First, the net income (finance income less interest on borrowings by the hire vendor) can be inflated at the rear end of the transaction and thereby defer tax liability. This is permissible by distributing the finance charge income over the period of hire agreement as the interest on his borrowings, which

Assessment of Hire Purchaser (Hirer)

Assessment of Hire Purchaser (Hirer) According to circular issued by the Central Board of Direct Taxes in 1943 and a number of court rulings, the hirer is entitled to (a) the tax shield on depreciation, calculated with reference to the cash purchase price and (b) the tax shield on the consideration for hire (total charge for credit). In other words, though the hire is not the owner of the asset, he is entitled to

Parties to a Hire Purchase Contracts

Parties to a Hire Purchase Contracts 1. The dealer contracts a finance company to finance hire purchase deals submitted by him. For this purpose, they enter into a contract drawing out the terms, warranties that the dealer gives with each transaction and so on. 2. The customer selects the goods and expresses his desire to acquire them on hire purchase. The dealer arranges for a full set of documents to be comple

Conceptual Framework

Conceptual Framework Meaning and Characteristics  Hire-purchase is a mode of financing the price of the goods to be sold on a future date. In a hire purchase transaction, the goods are on hire, the purchase price in installments hirer is allowed an option to purchase the goods by paying all the installment. A hire purchase agreement is defined as peculiar kind of transaction in which the on hire with an opti

HIRE PURCHASE FINANCE

HIRE PURCHASE FINANCE This Section examines the conceptual, taxation, accounting and evaluation framework of hire finance. Historically, hire purchase finance has been associated with financing of vehicles for road transport operators. It has emerged, in recent years as a source of equipment financing and an alternative to lease financing. We first explain the salient features basics of higher purchase transac

Profile of Lease Rentals

Profile of Lease Rentals The lease rentals may be quoted in several forms, for instance (i) level or period (ii) stepped where the lease rental increases at a fixed percentage over the earlier (iii) deferred, where the rental is deferred for certain periods to accommodate gestation (iv) ballooned under which major pan of the rentals is collected in a lump sum at the end primary period. (v) bell shaped when the

Structuring of Lease Rentals

Structuring of Lease Rentals Lease rentals are structured to suit the lessor and the lessee. From the lessee angle, the structure of the lease rental should synchronize his operational cash flow pattern. The dimension of the synchronization between the lease rental and the pattern of cash flows of the lessee are periodicity of rentals, lease rentals in advance arrears, profile of rentals and so on. Lease rental

Negotiation of Lease Rentals

Negotiation of Lease Rentals The break-even rentals of the lessor and the lessee represent the range of acceptable level of rentals. The break even lease rental of the lessor sets the lower limit, while the break even rental of the lessee sets the upper limit of the range. The actual rental has to be negotiated within the range. A rental within the range implies a positive. NAL / NPV(L), both for the lessor and