Taxation on gain on sale of car

Tax queries 1017 views 10 replies

Jandhyala Hasyam

6 Points Joined May 2016

I am a salaried employee. My company has an employee car lease option where an employee can take a loan through a financing company. The car itself will be in company's name but monthly emi will get cut from employee's salary. I opted for a 3 year tenure car lease and bought a car for 4 lakhs. Now the 3 years are over. Now the finance company has asked me to pay residual value of 1 lakh followng which they said i can transfer the car onto my name. It looks like what this effectively means is that i am buying the car for 1 lakh from the financer.

My question is this - I want to sell this car and have an offer from a buyer for 1.75 lakhs. Now even though i have been paying for the car from my salary the car is actually owned by my company. So now should I pay income tax / capital gain tax on the .75 lakhs ?

I read that car is a personal asset and there is not capital gain on it. Can this rule apply in my case ? If this rule has to apply in my case then will i have to transfer the car to my name first and then sell it to buyer (thereby buyer will beome third owner) ? Currently it is on companies name and i and i can directly register it to the buyer (thereby buyer will be second owner which is preferred by the buyer).

Thanks

Replies (10)

sravan

article student

86 Points Joined October 2014

Your contention is absolutely correct.. Car is a personal asset, so sale on transfer of personal asset doesn't arises Capital gains..

Jandhyala Hasyam

6 Points Joined May 2016

Dear Sravan,

Thank you reading through my question and responding. I agree that if i had directly purchased the car on my name what you say is evidently true. But this case is a bit confusing for me.

- On paper the car was not bought by me directly but by my company through a loan from finance company. So the car is owned by the company for the tenure of the lease.

- After the lease, effectively the finance company has sold me the car for 1 lakh rupees which is lower than the actual market value for the car by 75k rupees.

So my question is, in this case where car is not registered on my name, can i still claim that the car is my personal asset ?

renuka

Student

480 Points Joined October 2013

IMO, it is not stated anywhere that car has to be owned by the assessee. It only says held for use by him or member of his family. So ownership is irrelevant.

Jandhyala Hasyam

6 Points Joined May 2016

Thanks Renuka for your response. I am now believing that the gain that i make here is not taxable

Can you please tell me if i should be showing this income of 75K in my tax return form ? If so under what section ?

Thanks,

Praveen Tawania

Owner

369 Points Joined December 2014

Dear Memeber,

Please contact at www.financemitra.co.in for Tax consultancy.

sravan

article student

86 Points Joined October 2014

Offer Rs.75,000 as income from other sources

Ramanuj

Accountant.

834 Points Joined May 2008

DEAR ALL

I THINK THAT IT COME UNDER INCOME FORM OTHER SOURCE.

THANKS & REGARD

RAMANUJ

renuka

Student

480 Points Joined October 2013

Why would it come under Income from Other Sources? It is a case of sale of personal effect which has been specifically exempted from the definition of capital asset.

sravan

article student

86 Points Joined October 2014

But the act didn't said that income on sale of personal asset is not a income from under INCOME definition

Guest

Income from other sources does not have any provision to deduct the actual cost from income. Even if it allows deduction of cost/ expenses directly incurred, In this case effectively there is a loss of 2.25 L (3L lease payments +1 L purchase cost -1.75 sale value), He could buy the car only after paying lease rent of 3L and then 1L.

so in my view, there is no profit/ gain/ income at all.