- Date : 16/05/2023
- Read: 4 mins
A look at car leasing and how it benefits a car buyer.
- Introducing leasing of a car through an employer
- Why leasing is a good option for owning/obtaining a new car
- Things to keep in mind while leasing a car
Leasing is a popular practice that allows you to use an asset without having to buy it. It is something you can do when you wish to use an asset, but its price is certain to leave a hole in your wallet.
Leasing a car through your employer can help you get behind the wheels of cars that are outside your budget. Using car leases through employers, salaried car owners can take the leap from owning a hatchback to driving a sports utility vehicle (SUV). And it is not even a car loan facility and doesn’t involve equated monthly instalments. The lessor can buy the leased car at the end of the lease period.
Also Read: Planning to take a home loan? Know why you should stick to the old tax regime
Types of car leases
You can lease your dream car through your employer using one of two types of leasing: an operating lease or a finance lease.
With an operating lease, the car will remain registered under the employer’s name. At the end of the lease period, you have the option of upgrading to a new vehicle or paying the residual value of the existing car and buying it.
If you get the car through a finance lease, you, your employer, and the leasing company enter into a tri-party agreement. Here, the employer is the lessee, while you are a co-lessee. In this arrangement, ownership of the vehicle remains with the lessor.
Also Read: You can get these seven tax exemptions even when you choose the new tax regime
Why lease a car?
When you buy a car on your own, there are no tax breaks involved in the transaction. However, if your car lease rental is a part of your salary, it results in tax savings.
For example, let us assume that your annual salary is Rs 30 lakh. You buy a car and pay Rs 5 lakh for it during the year. You will pay tax on the entire annual salary of Rs 30 lakh. However, if your CTC includes the car lease rental of Rs 5 lakh, your taxable salary will be Rs 25 lakh. You can also deduct the expenses incurred during the year on car maintenance, driver’s salary, insurance, etc.
Another reason that makes leasing a better option is the absence of a down payment. It immediately saves a large cash outflow from your pocket.
Making it an even more win-win situation is the fact that the maintenance and insurance of the car are handled by the leasing company. They are the ones who take charge of the car if it needs to be resold.
Also Read: Pay zero tax: Step-by-step guide for those earning Rs 10 lakhs
Things to keep in mind
Since it is different from buying a car, there are a few things you need to keep in mind while leasing a car.
Changing jobs during the lease period may be complicated. It can be done if the car is in the salaried employee’s name and the new employer offers the car lease option. If the car is in the previous employer’s name or the new employer is not offering the lease option, you have to buy it outright. You may need to transfer the lease to another employee and/or surrender the lease. Many companies charge high penalties for the premature termination of a car lease.
There may be kilometre-based limits on the leased car. In such cases, additional use attracts additional costs too.
Adding accessories or car upgrades to the leased car is not as simple as doing so in a personal car. Such changes can be made by the employer at personal risk and only after prior approval.
If you wish to own a luxury car or an expensive SUV, a car lease offers a hassle-free option that also ends up reducing your income tax. If your employer offers this facility, there is no reason why you shouldn’t enquire about it for your dream car.
Sources:
- Introducing leasing of a car through an employer
- Why leasing is a good option for owning/obtaining a new car
- Things to keep in mind while leasing a car
Leasing is a popular practice that allows you to use an asset without having to buy it. It is something you can do when you wish to use an asset, but its price is certain to leave a hole in your wallet.
Leasing a car through your employer can help you get behind the wheels of cars that are outside your budget. Using car leases through employers, salaried car owners can take the leap from owning a hatchback to driving a sports utility vehicle (SUV). And it is not even a car loan facility and doesn’t involve equated monthly instalments. The lessor can buy the leased car at the end of the lease period.
Also Read: Planning to take a home loan? Know why you should stick to the old tax regime
Types of car leases
You can lease your dream car through your employer using one of two types of leasing: an operating lease or a finance lease.
With an operating lease, the car will remain registered under the employer’s name. At the end of the lease period, you have the option of upgrading to a new vehicle or paying the residual value of the existing car and buying it.
If you get the car through a finance lease, you, your employer, and the leasing company enter into a tri-party agreement. Here, the employer is the lessee, while you are a co-lessee. In this arrangement, ownership of the vehicle remains with the lessor.
Also Read: You can get these seven tax exemptions even when you choose the new tax regime
Why lease a car?
When you buy a car on your own, there are no tax breaks involved in the transaction. However, if your car lease rental is a part of your salary, it results in tax savings.
For example, let us assume that your annual salary is Rs 30 lakh. You buy a car and pay Rs 5 lakh for it during the year. You will pay tax on the entire annual salary of Rs 30 lakh. However, if your CTC includes the car lease rental of Rs 5 lakh, your taxable salary will be Rs 25 lakh. You can also deduct the expenses incurred during the year on car maintenance, driver’s salary, insurance, etc.
Another reason that makes leasing a better option is the absence of a down payment. It immediately saves a large cash outflow from your pocket.
Making it an even more win-win situation is the fact that the maintenance and insurance of the car are handled by the leasing company. They are the ones who take charge of the car if it needs to be resold.
Also Read: Pay zero tax: Step-by-step guide for those earning Rs 10 lakhs
Things to keep in mind
Since it is different from buying a car, there are a few things you need to keep in mind while leasing a car.
Changing jobs during the lease period may be complicated. It can be done if the car is in the salaried employee’s name and the new employer offers the car lease option. If the car is in the previous employer’s name or the new employer is not offering the lease option, you have to buy it outright. You may need to transfer the lease to another employee and/or surrender the lease. Many companies charge high penalties for the premature termination of a car lease.
There may be kilometre-based limits on the leased car. In such cases, additional use attracts additional costs too.
Adding accessories or car upgrades to the leased car is not as simple as doing so in a personal car. Such changes can be made by the employer at personal risk and only after prior approval.
If you wish to own a luxury car or an expensive SUV, a car lease offers a hassle-free option that also ends up reducing your income tax. If your employer offers this facility, there is no reason why you shouldn’t enquire about it for your dream car.
Sources:
