Benefits to lessor and lessee under leasing agreement:

1. Lessor can claim depreciation

As the equipment is purchased by the lessor and handed over to the lessee, the ownership is retained by the
lessor but only the possession is given to the lessee. The lessor claims depreciation and thereby gets some
concessions under the Income Tax Act. The depreciation claimed is also on the basis of Written down value
method (WDV) .

2. Sales tax benefits for lessor

Sales tax will be paid by the lessor as the equipment is bought by him. But later on, under financial lease he
can claim a part of the sales tax from the lessee, when the equipment is transferred to the lessee. The lessee
will be paying the sales tax on lesser amount. This is so because by the time the property or equipment is
sold to him, its value gets reduced.

3. Income tax benefits for lessee

The lessee gets certain benefits in the payment of rent, maintenance of the equipment and other promotional
expenditure incurred by him in keeping the equipment operational. For all these expenses, the lessee will be
claiming tax benefits under the Indian Income Tax Act. The benefits will be more when initial rentals are
higher. During the later part of the period, it will become less.

4. Modernization through lease finance

At present, small scale industries can have fixed capital upto Rs. 1 crore and tiny sector up to Rs. 2 lakhs.
Hence, most of the small scale industries are going in for modernization through lease finance. The tiny
sector is also putting to use the benefit of leasing companies.

5.PUBLIC SECTOR COMMERCIAL BANK BENEFIT

The public sector commercial banks have entered the field of leasing and factoring by starting separate
subsidiary companies. State Bank of India and Canara Bank are the pioneering banks in leasing finance
which is now being adopted by other commercial banks.

Thus, leasing finance provides enough opportunity for both lessor and lessee to gain in both income tax and
sales tax, as a result of which there is more scope for this kind of business in India in the future.

Money Market Capital Market

                                                                           Definition

A random course of financial institutions, bill A kind of financial market where the company or
brokers, money dealers, banks, etc., wherein government securities are generated and
dealing on short-term financial tools are being patronised with the intention of establishing
settled is referred to as Money Market. long-term finance to coincide with the capital
 necessary is called Capital Market.

                                                                    Market Nature

Money markets are informal in nature. Capital markets are formal in nature.

                                                                Instruments involved

Commercial Papers, Treasury Certificate of Bonds, Debentures, Shares, Asset

Deposit, Bills, Trade Credit, etc. Secularisation, Retained Earnings, Euro Issues,
etc.

                                                                   Investor Types

Commercial banks,  non-financial institutions, Stockbrokers, insurance companies,

central bank, chit funds, etc. Commercial banks, underwriters, etc.

                                                                 Market Liquidity 

Money markets are highly liquid. Capital markets are comparatively less liquid.

                                                                       Risk Involved

Money markets have low risk. Capital markets are riskier in comparison to
money markets.

                                                             Maturity of Instruments

Instruments mature within a year. Instruments take longer time to attain maturity

                                                                  Purpose served

To achieve short term credit requirements of To achieve long term credit requirements of the
the trade. trade.

                                                               Functions served

Increasing liquidity of funds in the economy Stabilising economy by increase in savings

                                                     Return on investment achieved

ROI is usually low in money market ROI is comparatively high in capital market