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CAR LEASE - TDS

Vikram (CA) (75 Points)

25 July 2008

My company gives a benefit to employees by way of a car lease. A contract is entered between the employee (or anyone who owns the car to be leased) and the company. The company pays hire charges every month. I would like to know whether 194C (TDS on contract) or 194I (Rent) applies for the rent paid by the company. My doubt is that 194 I by definition talks about land, buildings etc and it does not cover paying rent of any kind. Many cos give this type of benefit..What is the correct treatment?

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12 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 26 July 2008

If only the vehicle alone is taken that too exclusively by the company, 194I is applicable.

Vikram (CA) (75 Points)
Replied 26 July 2008

Originally posted by :S.Srinivasaraghavan
"	If only the vehicle alone is taken that too exclusively by the company, 194I is applicable.	"

Can I show Car lease as "Equipment lease" and deduct as per 194C?

Ramakrishna (Financial Executive) (438 Points)
Replied 14 September 2008

Dear Vikram!!

Do you know, the amendment brought into force in Section 194I on and from 13.07.2006?

It states that cases of lease of 'plant, machinery and equipment' as liable for TDS under Section 194I at the rate of 10% with surcharge and cess as applicable.

Good Bye!! Cheers!!

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 05 January 2009

Dear Rama Krishna

I am still in confusion, if the company has an agreement with the vendor to provide the bus along with the driver and the resposnsibility of maintaining the bus and running expenses is also on the vendor.

Can you suggest what TDS rate to be applied in the mentioned case.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 05 January 2009

This question is not clear as there can be two cases:

1. Car lease is paid to employees by the employer and the expenses of car are paid by the employee

2. Car lease is paid by the employer to the vendor

I think both case are different.....in 1st case FBT willbe applicable whereas in second case TDS willbe applicable under Section 194C

Do correct me if im wrong

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 05 January 2009

Dear Sudhanshu

In the query I am asking if the company has taken vehicle which is bus on hire from vendor, there is nothing like employer or employee.

If the company has taken bus on lease rent & the running & maintainence expenses are also borne by vendor tha what is the rate of TDS to be deducted on the lease rentals paid to the vendor.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 05 January 2009

Dear Rashi,

I have given the answer of Mr. Vikram's query.

Answer of ur query is it willbe taken under Section 194C and TDS at the rate of 2.06% willbe applicable and TDS willbe calculated on the Total bill amount provided by the vendor

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 05 January 2009

Thanx Sudhanshu,

Now if in case of original query as posted by Mr. Vikram, if the company is directly paying car lease rental to the lessor & nothing is been paid to the employee. Also the expenses of car is met by lessor.

Than what is the rate of TDS.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 05 January 2009

Well in that i am confuse with onething and that is

Does car is considered a machinery in Income Tax???.....

And i think if a fixed amount is paid irrespective of how many kms car runs then it should be taken as lease and TDS under Section 194I will be applicable

But if it is depend upon the no of kms then it should be taken under contract Section 194C

Do correct me if im wrong

Rashi hope to receive ur inputs on it as well

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 07 January 2009

Please provide a case law in support of this.

juzar (diversified) (176 Points)
Replied 31 December 2009

Dear All

If i take a loan for bank for car is it consider as financial lease for operation lease,

If i taka a car on lease from car rental company, all car related expense except petrol is done by car rental company that it is financial lease for operation lease,

regards

juzar para

ajay (AM) (22 Points)
Replied 17 January 2010

Sir

I have car lease provided by comapny. Now as per new CBDT perqusite rules it will go under perqusite value @ 10% of lease value. Please clarify this confusion.