Leasing and hire purchase companies may move court if the five per cent service tax on leasing and hire purchase companies is not removed.
Mahesh Thakkar, executive director, Association of Leasing and Financial Services, said: "We are keen to get the desired concession for our members, while keeping all options open, including the legal, if necessary."
The service tax on leasing and hire purchase, which was effective from July 16 will be on the interest portion of the leasing income as well as the management fees. There will be no tax on future payments to be received from the deals signed before July 16. Though the leasing companies have accepted the tax on the management fee, they are opposing the tax on the interest portion.
"It will be a case of double taxation if the interest income is taxed, since companies already pay sales tax," said Thakkar.
Earlier, on July 9, representatives of leasing and hire purchase companies put forward their demand before the finance ministry.
Thakkar said the companies, in a meeting last month, agreed to pass on the entire burden of the new service tax to clients as they were already working on a very low margin.
Service tax of five per cent will impact all the leasing and hire purchase players, but the non-banking finance companies (NBFCs) will be the worst hit. While banks can escape the service net by offering loans, guarantee or letter of credit in lieu of lease, under the current Reserve Bank of India regulations, NBFCs are not allowed to do so.
Income from leasing and hire-purchase dipped by 8.5 per cent in the first quarter of the current financial year as compared with the corresponding period of the last financial year. The new tax will force the downward trend to continue during the rest of the financial year, industry analysts fear.
