Question

Discuss the status of income tax and sales tax in context of leasing in india ? ( 10 points )

Answer 1

Ok so let us start with

income tax implications:

In India Income tax Act 1961 deals with the matter, it categorises the income as follows

If the assesse has leasing in his core bussiness then entire lease rental shall be taxable under the head "profits and gains from bussiness and profession"

If the assesse's core bussiness is not leasing then entire lease rental shall be taxable under the head "income from other sources"

And only the lessor will be entitled to claim the deduction of depreciation on the leased asset.

Needless to say that income dertby lessee from such asset shall be taxable in hands only.

In all these cases, tax will be levied as per normal rates of tax not special rates.

Sales tax implications:

Sales tax in india was abolished in india way back in 2004 and value added tax (VAT)was introduced which was abolished in 2017 by introducing Goods and service tax(GST).

Under Schedule 2 of section 7(2) of CGST Act 2017, leasing is service and as per SAC list of services, lease rental shall be taxable at a rate of 18% irrespective of long or short term lease.