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 completed to make a hire purchase agreement with a customer. The documents are generally printed by the finance company.
3. The customer then makes a cash down payment on completing the proposal form. The down payment is generally retained by the dealer as a payment on account of the price to be paid to him by the finance company.
4. The dealer then sends the documents to the finance company requesting him to purchase the goods and accept the hire purchase transactions.
5. The finance company, if it decides to accept the transactions, signs the agreement and sends a copy to the hirer, along with the instructions as to the payment of the installments the Finance company also notifies the same to the dealer and asks him to deliver the goods, if they are not already delivered.
6. The dealer delivers the goods to the hirer against acknowledgements and the property in the goods passes on to the finance company.
7. The hire makes payment of the hire instalment periodically.
8. On completion of the hire term, the hirer pays the last instalment and .the property in the goods passes on to him on issue of a completion certificate by the finance company.

Taxation Aspects

The taxation aspects of hire-purchase transactions can be divided into .three pans: (i) income tax, (ii) sales tax and (iii) interest tax.

Income Tax

Hire-purchase, as a financing alternative, offers tax benefits both to the hire vendor, (hire purchase finance company) and the hire purchaser (user of the asset).

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