In lease transaction,the party owning the asset (Called lessor) gives it to other person (lessee) for certain period of time for consideration (lease rent)

There are 2 types of leases

  1. Complete possession and control of asset is handed over

         In this case,VAT is applicable

         In interstate sale ,CST is applicable

  1. Complete possession and control of asset is handed over, only lessee is allowed to use it for some period

         In this case, no VAT or CST is applicable

         However, service tax is applicable on rent paid

 

How is VAT Charged, if Complete possession and control of asset is handed over?

  • Taxable event is the transfer of the right to use any goods
  • Taxable Consideration is the total lease payments
  • (However, some states allow for deduction of finance charges)
  • Input tax credit allowed on purchase.
  • Input of goods used in maintenance of asset also available
  • However, if asset is purchased is a capital goods(fixed asset), input available in only some states and that too if used for production or sale
  • Sale of leased asset after lease period:-Vat is applicable on sales price

 

Note:-Power to impose VAT is given 

As per Article 366 of constitution which states that

“tax on sale or purchase” includes “a tax on the transfer of the right to use any

goods for any purpose (whether or not for a specified period) for cash, deferred

payment or other valuable consideration.

(Sub-clause (d) of clause (29A) of Article 366)

  1. Indirect Tax
  2. Vat
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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