Hire Purchase Agreement Stamp Duty
1.2. What element of a lease agreement concluded before July 1, 2012 is a financial benefit and which component is subject to the GST? The tenancy agreement is a contract by which the goods are leased and the tenant has the opportunity to purchase the goods in accordance with the terms of the agreement. Leases are often used by the aviation and automotive industry for aircraft and automobile rentals. Sometimes the amount financed under a lease-sale includes other amounts, such as registration, stamp duty and insurance, paid by the financier on behalf of the beneficiary. These are not taxable deliveries made by the financier to the recipient. In a rental agreement, the landlord rents goods to the tenant with the option of purchasing the goods if he has paid a certain amount. Under this system, the buyer who is unable to pay the full price of the asset in a package receives the opportunity to acquire an asset and, after payment of an upfront amount called a premium, the buyer pays the consideration in installments. After payment of all payments, ownership of the goods is transferred to the tenant. The tenant has the option to return the goods during the rental period. In a tenancy agreement, the tenant has the right to terminate the lease according to his pleasure and is not obliged to pay the value of the goods. As a result of changes to the GST regulations, which came into effect on July 1, 2012, the provision of the credit component is no longer considered a financial supply. This applies to all leases concluded as of July 1, 2012.
Leasing contracts concluded before July 1, 2012 are governed by the rules in force to date. Leasing is subject to the Hire Purchase Act of 1972. Leasing contracts are of two types. In the first type, the goods are purchased by the financier by the merchant and the financier enters into a lease-sale agreement with the customer whereby the customer becomes the owner after payment of all payments for the goods. In the second type of rental, the client acquires the goods and executes a lease-sale agreement with the financier, in which he remains in possession of property, subject to payments from the customer to the financier. The financier has the right to seize the goods if the customer does not meet the financial repayment condition. If the tenant is late in paying the payments, the landlord can resume the withdrawal of the goods. However, the use of force during the recapture is not permitted. The use of physical force to regain physical possession of goods can lead to a criminal act. Possession of goods may be taken by a civil court.
If the owner decides not to take back the goods, he has the opportunity to claim damages. Therefore, even until June 30, 2012, if the credit component is not disclosed to the beneficiary, the entire lease (main contract and credit contract) is subject to the GST. Lease agreement requires a stamp duty like any other ordinary agreement under the Indian Stamp Act to pay. However, registration of a lease-sale agreement is not necessary, as it generally does not involve real estate assets. The total amount payable by a beneficiary under a lease-sale contract usually consists of a principal component (i.e.dem amount financed) and an element of credit (i.e. terms and mark-ups).