Problems of leasing in India

Leasing has great potential in India. However, leasing in India faces serious handicaps which may bar
its growth in future. The following are the some of the problems. 1. Unhealthy competition – There is
over supply of lessor in India. The stiff competition between these lessors are force them to reduce
their profit margin to bare minimum level. More over subsidiaries of banks and financial institution
have competitive edge over private sector lessor due their cheap source of finance. 2. Lack of
qualified personnel- leasing requires qualified and experienced personnel at the helm of its affairs. In
India, leasing is of recent one and hence it is difficult to get right man to deal with leasing business. 3.
Tax Consideration- In reality, the lessee’s tax shelter is lessors’ burden. The lease becomes
economically viable if lessors effective tax rate is low. more over taxes like sale tax, wealth tax,
additional tax , surcharge etc, add to the cost of leasing. It makes leasing relatively more expensive 4.
Stamp Duty- States treats the leasing transaction as a sale for the purpose of making them eligible to
sales tax. On the contrary, for stamp duty, the transaction is treated as pure lease transactions.
Accordingly heavy stamp duty imposed on lease document. 5. Delayed payment and bad debts- The
problem of delayed payment of rents and bad debts add to the cost of lease. This problem would
disturb prospects of leasing business. HIRE PURCHASE Concept and Meaning of Hire Purchase Hire
purchase is a type of instalment credit under which the hire purchaser, called the hirer, agrees to take
the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as
interest, with an option to purchase. Under this transaction, the hire purchaser acquires the property
(goods) immediately on signing the hire purchase agreement but the ownership or title of the same
is transferred only when the last instalment is paid. The hire purchase system is regulated by the Hire
Purchase Act 1972. This Act defines a hire purchase as “An agreement under which goods are let on
hire and under which the hirer has an option to purchase them in accordance with the terms of the
agreement and includes an agreement under which: 1) The owner delivers possession of goods
thereof to a person on condition that such person pays the agreed amount in periodic instalments. 2)
The property in the goods is to pass to such person on the payment of the last of such instalments,
and 3) Such person has a right to terminate the agreement at any time before the property so
passes”. Legal framework of Hire purchase transactions The hire purchase system is regulated by the
Hire Purchase Act 1972. In a hire-purchase transaction, assets are let on hire, the price is to be paid
in instalments and hirer is allowed an option to purchase the goods by paying all the instalments. A
Hire Purchase agreement usually requires the customer to pay an initial deposit, with the remainder
of the balance, plus interest, paid over an agreed period of time. Under hire purchase agreement,
you: 1. Purchase goods through instalment payments 2. Use the goods while paying for them 3. Do
not own the goods until you have paid the final instalment