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Indian Financial System

Notes  Rentals: This clause specifies the procedure for paying lease. Lease rentals by the lessee to
the lessor at the rates specified in the schedule to the agreement. Use lawful usage.

 Repairs and Maintenance: This clause specifies the responsibility for repairs and
maintenance, insurance and so on.
 Alteration: It specifies that no alteration to the leased equipment may be made without
the written consent of the lessor.
 Taxes and Charges: This clause specifies clearly which party to the agreement would bear
the delivery, re-delivery, customs, income tax, sales tax and clearance charges.

 Inspection by Lessor: It gives the lessor or his representative a right to enter the lessees
premises for the purpose of confirming the existence, condition and proper maintenance
of the equipment.
 Prohibition of Sub-leasing: This clause prohibits the lessee from the D sub-leasing or
selling the equipment to third parties.

Apart from the main/master lease agreement the attachments consists of:
1. Guarantee agreement
2. Promissory note
3. Receipt of goods

4. Power of attorney
5. Collateral security and Hypothecation agreement.

11.6 Tax Aspect

Unfortunately, the tax benefits which leasing companies enjoy in the developed countries are
not available to the Indian leasing companies. Tax benefits arising out of depreciation, investment
allowance of deposit scheme, etc., are not conducive to the growth and promotion of leasing
companies. Investment allowance (u/s 32A) was abolished from 1 April 1987, and in its place an
investment deposit scheme (u/s 32AB) has been introduced. Under this scheme, the amount of
deduction is limited to 20 per cent of the profit of eligible business or profession as per the
audited accounts. However, this scheme excludes certain categories of leasing. The latest position
is that even this has been abolished as announced in the budget of 1990-91.
In addition to the above, the Finance Act 1987, had introduced Section 115J of Income Tax Act,
1961 which provided for a minimum tax of 30 per cent on the book profits of a company. The
leasing companies brought within the orbit of this new tax provision faced uneasiness; now this
has been abolished, as announced in the budget 1990-91.

Sales Tax Problems

Leasing companies are also facing the problems of sales tax. The 46th Amendment to the Indian
Constitution, which came into force from February 1983, has empowered the State governments
to levy sales tax on the transfer of rights or to the use of any goods for valuable consideration.
As a result, the legal position of finance lease is a "deemed sale" under the State Sales Tax Act. The
governments of Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Kerala, Maharashtra,
Madhya Pradesh, Orissa, Tamil Nadu, and West Bengal have already amended their sales tax
Acts in accordance with the 46th amendment to the Constitution. Hence, leasing companies are
required to pay sales tax at higher rates on a lease transaction as they are not being allowed to
use 'G' forms. This makes leasing more expensive, as the cost of the asset acquired under lease

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