Advice needed: Buy a new car under company lease or retain existing car

My new organization also offers a car lease plan but my current organization does not allow transfer of lease to the new organization.

BHPian TheWall recently shared this with other enthusiasts.

Hi All,

Need advice on a situation I am currently in.

I have a car lease plan with my current organization for 3 years and have completed a year till now. Unfortunately due to various factors, I had to quit the organization and switch to a different one.

My new organization also offers a car lease plan but my current organization does not allow transfer of lease to the new organization.

I have the following options now.

1. Pay the remaining amount of the car (approx. 10lakhs) and obtain NOC, transfer the car to my name and be done with it.

Pros: I become permanent owner of my current car.

Cons: Need to spend 10lakhs from my pocket, will lose out on tax benefits.

2. Surrender the car to the current organization and take another car under lease plan in my new organization.

Pros: Need not spend a rupee from my pocket.

Cons: Will lose the car and some attachment towards it

Will have to wait for weeks before I can get a new car given the current market demand.

Please suggest what should I do? Also, please feel free to suggest any other options as well.

Here’s what GTO had to say on the matter:

This is for your 5th-gen Honda City, right? It is surely worth more than 10-lakhs. If you’re happy with the car, pay the 10 lakhs and take full ownership.

On the other hand, if you want to change the model, then toothless’ suggestion is brilliant.

But the City is phenomenal midsize sedan and I’d personally retain it. Cars depreciate the steepest in the initial 3 years and the value you get out of your City is surely worth more than its resale price today. Additionally, new car prices have shot through the roof since you bought your car, so you’d pay a lot more for an upgrade. Keeping these points in mind, you tend to lose a lot of money than meets the eye, by letting go of your City.

Here’s what BHPian toothless had to say on the matter:

I had been in a similar situation about 12 months back and evaluated a third option, which you may want to think about as well.

Get the car evaluated by Cars24 or other second hand car buyers. If the value is more than the 10L, pay the 10L and sell it to them. Most likely, the market value of the car will be 20-30% more than the balance lease obligation of ~10L that you estimate. This way, you can realize the difference, without having to spend money. Down side, you block your working capital for probably a month. Positive: You get to pocket the difference in the value and avail a fresh car lease from your new employer.

When I quit my organization, the market value of the car was ~8L-8.5L and my payment obligation was ~4.2L. Dint make sense to let go of the car.

Side note, do not forget GST when estimating your foreclosure amount. If possible, seek a detailed foreclosure calculation from the leasing agency.

Here’s what BHPian condor had to say on the matter:

Not a black and white situation.

Transfer of lease on a car between organizations is not done even if the leasing company is the same for both companies.

In present situation, it may be better to go for a fresh lease with the new company. You could get a newer version of the same model, or may be another model altogether.

Here’s what BHPian vigsom had to say on the matter:

It is a heart vs head situation. If I were you, I’d go with option2. Argument from my own experience:

Own car

a. Typically, tax benefits on fuel, maintenance and driver’s salary are not “lucrative” enough in most companies under the Own Car plan . The max benefit one gets by way of exclusion from taxable income is INR1600 a month (INR21,600 a year) for running expenses for cars under 1600cc engines, and 2400 a month (INR28,800 a year) for engines larger than 1600cc. An additional INR900 a month is allowed as a deduction in case a driver is employed.

In the case of company leased plans/company owned car, the number is way way higher based on limits defined and bills submitted.

b. The EMI and insurance paid is also deducted from net taxable income in the case of a car bought through company lease. Insurance for one’s own car only qualifies under the total deduction of INR21,600 or INR28,800 as explained in point a.

This motor tax calculator will help in understanding taxation around this aspect. The rules are leveraged by companies based on their interpretation and risk appetite.

While tax benefits under the lease plan or company car option are huge, the negative of using a car through company lease is it is like an indirect bond, if broken can leave one’s bank broken. I almost went for a company lease in 2012 but ended up with a used Corolla to remain unbonded. Got nothing by way of tax benefits but breathed easy.

In your case, please do the math around what the new company’s lease plan options provide by way of tax benefits and then take a call.

Read BHPian comments for more insights and information.

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