Page 178 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 11: Leasing

Notes
demand. It is now more about taking a call on future requirement…There is always a risk
that one may be left with vacant space," the official said.
At present, IT and ITES account for nearly 80 per cent of commercial office space.
Reserve Space
"Clients are certainly not seeing that far ahead (two-three years) and are focusing on the 6-
12 month business plans. As a result, long-term pre-commitments and soft options are on
a decline. Also the window on reserve space option (space that is kept-off the market and
offered as option to corporates to take up within a specific timeframe) has come down
drastically," says Mr Kaustuv Roy, Director, Tenant Strategies & Solutions at Cushman &
Wakefield.
Echoing a similar view, Mr Lakshmi Narayanan, President and CEO of Bangalore-based
Real Estate Bank India (REBI), said the outer limit of projection that infotech companies
are now willing to take is one year.

Question
Need-based leasing of IT space seems to be 'gaining ground' in commercial real estate.
Discuss.
Source: http://www.hinduonnet.com

11.5 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 1st April 1987, and in its place
an investment deposit scheme (u/s 32 AB) 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
finance gets enhanced to the extent of sales tax paid by the leasing companies. This is bound to
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,

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