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Unit 11: Leasing and Factoring

finance gets enhanced to the extent of sales tax paid by the leasing companies. This is bound to Notes
cripple the leasing industry, which is still in the nascent stage. In view of the burden created by
sales tax, the Central Government should take immediate steps and formulate guidelines,
ensuring uniform legislation among various States. It should ensure uniformity in the scope
and contents of the sales tax. The facility of using 'G' should also be extended to leasing companies.
Prabhu, Chairman, Canara Bank in his chairman's speech in June 1989 remarked that there were
certain avoidable constraints restraining the lease finance from becoming a major source of
corporate finance. The levy of sales tax on rentals by many State governments makes leasing
unattractive. The benefits of lease finance, in terms of accelerated modernisation and industrial
growth, are to that extent adversely affected. Yet another problem is in obtaining approval for
issue of 'C' Forms by lessors under the Central Sales Tax.

It is noticed from the analysis of the questionnaire responses that 100 per cent of the respondents
suggested that Section 115J of the Income-Tax Act, 1961, and sales tax on lease rentals should be
abolished with immediate effect. About three fourths of the respondents expressed that the
investment allowance and investment deposit scheme should be extended to the leasing
companies. The leasing companies would feel relieved since Section 115 has been scrapped.
Rigid Procedure for Import Leasing

In India, Leasing industry has high potential in areas like import leasing or international leasing.
Recently, a few leasing companies entered the arena of import leasing. The import and Export
Policy for 1985-88 has laid down the following eligibility criteria for leasing companies to do
import leasing.
The memorandum and articles of association of the leasing company must specifically provide
for leasing as one of the objectives. The leasing company must have a minimum paid-up share
capital and reserves of ` 1 crore. The share of leasing company must be listed in a recognized
stock exchange. Thus, leasing of imported equipment has been restricted a meagre part of the
industry. A number of respondents indicated the problems of import leasing and made the
following suggestions:
1. Import of OGL items to be permitted without approval the Joint Chief Controller of
Imports and Exports (JCCI & E).
2. The Chief Controller of Imports and Exports (CCI&E) has to reduce the period for giving
permission for import leasing.

Self Assessment

Fill in the blanks:
1. The 46th Amendment to the Indian Constitution, has empowered the State governments
to levy sales tax on the .......................... of rights.

2. The tax benefits which leasing companies enjoy in the developed countries are
.......................... to the Indian leasing companies.
3. To, take a decision whether to finance a lease or lease an asset, the lessor/ financier
requires a lot of commercial document of the .......................... .
4. The provisions of the .......................... relating to bailment are specifically applicable to
leasing contracts.

5. In an import lease, the lessor and the lessee are domiciled in the .......................... country.

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