ITFT - Hire purchase
1. Hire Purchase Hire purchase is a type of installment credit under which the hire-purchaser, called the hirer, agrees to take goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase. 2. Characteristics of Hire purchase Hire-purchase is a credit purchase. The price under hire-purchase system is paid in installments. The goods are delivered in the possession of the purchaser at the time of commencement of the agreement. Hire vendor continues to be the owner of the goods till the payment of last installment.till the payment of last installment. The hire-purchaser has a right to use the goods as a bailer. The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer. The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement. If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount. 3. Difference between Hire Purchase and Leasing Meaning Option to useruser Nature of expenditure Components 4. Legal Aspects of Hire purchase The Hire purchase Act was passed in 1972. An Amendment bill was introduced in 1989 to amend some of the provisions of the act. The act contains provisions for regulating: 1. the format / contents of the hire-purchase agreementagreement 2. warrants and the conditions underlying the hire- purchase agreement, 3. ceiling on hire-purchase charges, 4. rights and obligations of the hirer and the owner. In absence of any specific law, the hire purchase transactions are governed by the provisions of the Indian Contract Act and the Sale of Goods Act. 5. Tax implications of Hire Purchase Under a Commercial Hire Purchase, tax deductions may be available when the vehicle is used for business (income producing) purposes. Generally, under a Commercial Hire Purchase tax deductions can be claimed for depreciation on the vehicle (up to the Depreciation Limit), and interestvehicle (up to the Depreciation Limit), and interest charged on the loan. With a Commercial Hire Purchase, GST is charged on the purchse price of the car, and also on any term charges or fees. Customers who are registered for GST on an Accruals basis or Cash basis can claim the GST contained in the purchase price of the vehicle as an Input Tax Credit on their next BAS.