Rate of Tax
The rates of tax on hire purchase deals vary from state to state. There is, as a matter of fact, no uniformity even regarding the goods to be taxed. If the rates undergo a change during the currency of a hire purchase agreement, the rate in force on the date of delivery of the goods to the hire is applicable.
The hire purchase finance companies, like other credit finance companies, have to pay interest tax under the Interest Tax Act, 1974. According to this Act, interest tax is payable on the deal amount or interest earned less bad debts in the previous year @ 2 per cent. The tax is treated as a tax deductible expense for the purpose of computing the taxable Income under the Income Tax Act.