Can’t buy your dream car, take it on lease
Tax benefits coupled with zero maintenance are making cars taken on so-called "operating lease" more attractive, especially among corporate executives.Updated: Jun 10, 2008 21:21 IST
For all those aspiring to buy that premium sedan but daunted by hefty monthly payouts (EMIs) that come with it, there is some good news. Tax benefits coupled with zero maintenance are making cars taken on so-called "operating lease" more attractive, especially among corporate executives.
Under operating leases, you pay 50 per cent of the car's price, and while you never own the car, you get to use it for 4-5 years without shelling a penny towards maintenance, insurance or registration. Further, there is no upfront payment. The result: huge savings compared outright purchases.
"High interest rates have helped this industry. When rates were low, car loans were seen as a commodity. Now it is a liability and operational leasing diminishes the liability aspect, while the consumer still enjoys the benefits of a car," said Karunesh Arya Chief Operating Officer Hertz lease.
Almost 900 companies in the country, including Reliance Industries, TCS, NTPC, have already gone for it.
For an employee, the lease rental is tax free, while he gets no tax benefit from the EMI he pays for making an outright purchase. The lease-in mode also benefits the employer as it can claim depreciation, which could offset any Fringe Benefit Tax paid by the company.
"The attractiveness of an operating lease gets hyphenated in a high interest rate scenario. There has been a spurt in enquiries in the last few weeks," said Ajay Narain Director-Finance, Leaseplan. "Monthly lease rentals will never change during the period even if interest rates hit the roof, which benefits a salaried employee."
The catch however, is that operational leases do not make economic sense over a short term period or for individuals. "The lease has to be routed through the employer so an individual cannot avail the tax benefits on hos own. Further it does not make economic sense for less than two years," Narain added.