Page 183 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services Mahesh Kumar Sarva, Lovely Professional University

Notes Unit 12: Hire Purchasing

CONTENTS
Objectives
Introduction

12.1 Concept
12.2 Legal Framework
12.3 Taxation

12.4 Summary
12.5 Keywords
12.6 Self Assessment
12.7 Review Questions
12.8 Further Readings

Objectives

After studying this unit, you will be able to:
Explain the concept of hire purchase
Discuss legal framework

Describe taxation of hire purchase
Introduction

Hire purchase is a mode of financing the price of the goods to be sold on a future date. In a hire
purchase transaction, the goods are let on hire, the purchase price is to be paid in installments
and hirer is allowed an option to purchase the goods by paying all the installments. Hire
purchase is a method of selling goods. In a hire purchase transaction the goods are let out on hire
by a finance company (creditor) to the hire purchase customer (hirer). The buyer is required to
pay an agreed amount in periodical installments during a given period. The ownership of the
property remains with creditor and passes on to hirer on the payment of the last installment.

12.1 Concept

A hire purchase agreement is defined in the Hire Purchase Act, 1972 as peculiar kind of transaction
in which the goods are let on hire with an option to the hirer to purchase them, with the
following stipulations:
1. Payments to be made in installments over a specified period.
2. The possession is delivered to the hirer at the time of entering into the contract.

3. The property in goods passes to the hirer on payment of the last installment.
4. Each installment is treated as hire charges so that if default is made in payment of any
installment, the seller becomes entitled to take away the goods.

178 LOVELY PROFESSIONAL UNIVERSITY