LEASINGssss

8/8/2019 LEASINGssss

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LEASINGBinto Varghese Paul



C ONCEPT

A lease represents a contractual arrangementwhere the lessor grants the lessee the right to usean asset in return for periodical lease rental

payments.The arrangement between two parties, theleasing company or lessor and the user or lessee.



T YPES OF L EASE

F inancial LeaseOperating LeaseLeverage Lease

Sale and Lease backCross Border Lease



O PERATING L EASE

Contractual period between lessor and lessee isless than full economic life of equipment i.e.short-term in nature.

The lease is terminable by giving stipulatednotice as per the agreement.The risk of obsolescence is enforced on the lessorwho will also bear the cost of maintenance andother relevant expenses.



L EVERAGE L EASE

Arrangement for assets of huge capital outlayLessor acquires the asset with maximumcontribution up to 50% and rest is financed by

lenders secured by mortgage of the asset besidesassignment of leased rental payments.Parties involved are (a) Lessor (Max. 20 ² 50%stake) (b) Lessee (As in operational lease) (c)Lenders (Rest stake holders)



S ALE AND L EASE B ACK

Arrangement where a firm which has an assetsells it to leasing company / lessor and gets itback on lease.

Lessee gets the sale price in the market valueand gets the right to use the asset during thelease period.Title of the asset remains with the lessor.



C ROSS B ORDER L EASE

I t is international leasing and is referredotherwise as transactional leasing.I t is international leasing and is referred

otherwise as transactional leasing.Relates to lease transaction between different alessor and lessee domiciled in different countries.



F INANCIAL L EASE

I rrevocable and non-cancellable contractualagreement.Lessee uses the asset exclusively for a relatively

longer period, maintains it, insures and avails of the after sales service and warranty backing it.Lessee bears the risk of obsolescence as it standscommitted to pay for entire lease period



A DVANTAGES AND D ISADVANTAGES OFL EASING

SI.No Advantages Disadvantages

Permit alternative use of fundsF aster and cheaper credit

F lexibilityF

acilitate additional borrowingProtection against obsolescenceBoon to small firm

Lease rentals arepayable soon afterentering into lease

agreement while innew projects cashgeneration may start

after gestationperiod.

The cost of financingis higher than debt

financing.I f the lessee defaults

in payment, lessorwould suffer a loss.



L EGAL ASPECTS OF L EASING

U nder Section 148 of I ndian Contract Act leasingis executed.The lessor has the duty to deliver the asset to

lessee, legally authorizes lessee to use the asset.The lessee has the obligation to pay the leaserentals as per lease agreement, to protect lessor·stitle, to take reasonable care of the asset, and toreturn the leased asset on the expiry of leaseperiod.



A CCOUNTING OF L EASE

The leased asset is shown on the balance sheet of the lessor.Depreciation and other tax shields associated

with leased asset are claimed by the lessor.The entire lease rental is treated as an income inthe books of the lessor and expense in the booksof lessee.



T AX A DVANTAGES OF L EASING

The lessee can claim lease rentals as taxdeductible expenses.The lease rentals received by lessor are taxable

under the head of ´Profits and Gains of Businessor ProfessionµThe lessor can claim investment allowance anddepreciation on the investment made in leasedassets



IFFERENCE BETWEEN IG H ER URC H ASE AND L EASE

Leasing H igher Purchase

Option to user No option is providedto the user topurchase the goods.

Option is provided topurchase the goods

Nature of expenditure

Lease rentals paid bythe lessee are

entirely revenueexpenditure by lessee

Only interestelement

included in the HPinstalments isrevenueExpenditure

Components Lease rentals

comprise of 2 elements1. finance

charge and2. capitalRecovery

HP instalments

compriseof 3 elements1.normaltrading profit2. financecharge3. recovery of cost of goods/assets



I NFRASTRUCTURE L EASING &F INANCIAL S ERVICES L IMITED



I L & F S :A N O VERV I EW

I nfrastructure Leasing & F inancial ServicesLimited ( I L& F S) is one of I ndia's leadinginfrastructure development and financecompaniesI L& F S was promoted by the Central Bank of I ndia (CB I ), Housing Development F inanceCorporation Limited (HD F C) and U nit Trust of I ndia ( U T I )



LEAS I NG S ECTORS

Transportation Area DevelopmentCluster Development

F inancePowerPortsWater and Waste WaterU

rbanInfrastructureEnvironment

EducationTourism



B ALANCE S HEET



Thank You

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