Tax implications of business car leasing v/s buying
Get in the smart lane with car leasing tax benefits
When it comes to getting your business fleet up and running, cost effectiveness is a huge concern. As somebody responsible for managing your company car fleet, you want it to perform as an asset rather than a liability. That’s why it’s crucial to analyse what works better for you — whether it’s leasing a fleet or buying one.
While there are many pros to both, leasing requires lesser capital investment and is also a great way to save taxes for your company.
Let’s take a look at how car leasing can help you avoid paying more taxes, without compromising on your company’s mobility needs.
A summary of leasing:
We all know leasing works on a usership model, which means you pay a monthly rental for the service you receive from mobility partners. There are a handful of car leasing partners in India, one of which is ALD automotive. You can also opt for fleet management services that include maintenance and 24x7 roadside assistance, pick-up and drop, insurance as well as other recurring costs. This helps you tackle the worries that come with owning a car. ALD Automotive also provides a relief car, so you don’t get stuck without transport, during emergencies and breakdowns.
Ownership and Depreciation
As opposed to buying a car or an entire fleet, where you have permanent and complete ownership of the vehicle(/s), operating lease gives you usership, for a fixed tenure and mileage that is pre-decided as per your contract. Usership means you don’t run the risk on resale of the asset. Leasing a car means that you do not invest upfront in a depreciating asset thereby allowing you to put your capital to better use, and thereby making your bottom line look better.
Tax on leasing a vehicle
Buying a fleet of cars for your employees goes down as a fixed sunk cost in your books. Whereas when you lease those cars, it is recorded as a running cost which is expensed out, thereby saving you tax.
Tax on owning a vehicle
On the other hand, when you buy a new car, in addition to the cost of the car, TCS of 1% is deducted for transactions above 10 lakhs. A composition cess of 1% to 22% is also levied, depending on petrol / diesel / electric cars cars, engine capacity etc.
In addition to that you also have to pay the cost of depreciation, the interest on EMIs and you end up paying a lot more than the actual price of the car.
Thus, we see that car leasing in India can help you save more on taxes as well as in terms of depreciating costs. So, give your company the push in performance it needs, with the car fleet it deserves. Try Leasing now.