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Considering an operating lease?
Lease machinery, equipment and fit-outs from ₹25 lakh to ₹100 crore.
Check eligibilityWhat drives a lease rental
A lessor sets the rental so that it recovers the part of the asset's cost it does not expect to get back at the end, plus a return. Four factors drive the amount.
1
Asset cost: the price paid to the supplier, including any installation or fit-out costs that are funded.
2
Tenure: spreading the cost over more months lowers each rental but usually raises the total paid.
3
Residual value: the more the asset is expected to be worth at the end, the less the rentals need to recover.
4
Pricing and credit: the lessor's cost of funds and its view of the lessee's credit set the rate built into the rental.
Timing matters too. Rentals paid in advance cost slightly more in present value terms than the same rentals paid in arrears.
When it differs from an EMI
A lease rental and a loan EMI are both fixed monthly outflows, but they pay for different things and are taxed and booked differently.
WHAT CHANGES
Lease rental
Loan EMI
What it pays for
Use of an asset the lessor owns
Principal and interest on money borrowed
Residual value
Lessor's estimate lowers the rental
Not relevant: you repay the loan in full
GST
Charged on each rental invoice
None on EMI; GST paid upfront on asset
P&L under AS 19
Expense, if operating lease
Interest and depreciation
How lease rentals are treated
Rentals are set out in the rental schedule for each asset, with the amount, frequency, start date and tenure. How they show up in your accounts and tax returns depends on the lease type and the standards you report under.
Accounting.
Under AS 19, operating lease rentals are generally expensed on a straight-line basis. Under Ind AS 116 most leases become a right-of-use asset and lease liability, so P&L shows depreciation and interest.
GST.
Leasing is a taxable supply, so GST is added to each rental. The lessee can generally claim input tax credit if the asset is used for taxable business, subject to blocked-credit rules.
The GST rate and credit depend on the asset and its use. Confirm with your tax adviser.
Where it shows up
Racking and forklifts for a new warehouse
ILLUSTRATIVE
A warehousing company needs ₹2 crore of racking and forklifts for a new site. It leases them for five years at ₹4 lakh a month, so it pays 60 × ₹4 lakh, or ₹2.4 crore, over the term, while the lessor keeps the residual value of the equipment. Each invoice carries GST at the rate that applies to the asset, which the company expects to claim as input tax credit. In place of a ₹2 crore outlay at the start, its budget shows a fixed monthly cost that runs alongside the revenue from the new site, and its working capital lines stay free for operations.