Renting makes sense for the self-employed more than the salaried.
Nirmal Borooah, a businessman from Mumbai, is quite comfortable with his car leasing arrangement. For one, it saves him from what he calls, “the headache of car maintenance”. Also, he does not have to worry about the driver separately. “I make a monthly lump sum payment to the leasing company,” says Borooah, who has been doing this for the last six years.
Leasing a car is a good option for the likes of Borooah. Being a self-employed individual, the lease rental he pays is treated as an expense, allowing him to earn tax benefits. However, on the flip side, even after paying rentals for so many years, Borooah does not own the car.
For the self-employed, lease rental is treated as an expense
For salaried, there are no tax benefits on car rental
Reduces maintenance headache, as these are taken care of by the leasing company
On a like-to-like car, the monthly rental works out to be at par EMIs on a car loan
Through a financial leasing contract, one could purchase the car at the end of tenure
As Rahul Maroli, general manager (commercial), LeasePlan, a car leasing company, says, “For the self-employed, purchasing a car gets them depreciation benefits, whereas leasing means expense benefit.”
A lease, which is normally for two-four years, gives you the right to use a vehicle for a pre-determined tenure and contracted kilometers against payment of monthly fixed lease rentals. The leasing company provides a pick and drop facility for the car to be taken to the workshop for service, takes care of damage repairs and provides a 24/7 roadside assistance service or a standby replacement vehicle when the car is in the workshop for repairs. All these costs are covered in the lease rental.
Some players in the car leasing space include Leaseplan India, Arval India and ALD Automotive. BMW, which set up its financing arm recently, has said it will enter the leasing business very soon.
There are two kinds of leasing contracts. In case of operational leasing, all you have to do is buy fuel and leaving the other hassles to the leasing company. Another option is that of financial leasing. With this, you can look at buying the car from the leasing company.
If one were to compare the purchase of a car through equated monthly instalments (EMIs) vis-a-vis renting, the numbers are similar. Say you have taken a three-year car loan of Rs 5 lakh at 12 per cent interest. That would translate into a monthly Rs 20,000 plus maintenance costs. On the other hand, Borooah pays about Rs 18,000 a month for the Santro he has leased, which includes both the rental and the maintenance costs.
The rental on a car is calculated on the basis of a number of factors such as age, mileage, services, including insurance, replacement, damage waiver and accident management, among others. However, you will have to pay an extra sum if you cross the stipulated mileage.
Opting for financial leasing, that is, when you wish to buy the car at the end of the tenure, may not be a great idea. If you want to buy the car after the contract is over, you will pay more than what you would have had you purchased it in the first place.
For the salaried, leasing the car itself will not help them garner tax benefits. If their company leases the car and gives it to them, the company can claim the rental as an expense. However, an individual who is renting it himself/herself will have to bear the cost.