Hire purchase is a purchase of an asset in which customer makes down payment and finance rest of the amount through financial institutions or banks. On rest of the unpaid amount he pays interest at a certain pre-described rate of interest.
After making complete payment the assets becomes the legal right of customer. Lease on the other hand is an agreement of using asset for certain period and paying rent on it at a pre-described rate of interest. It is a temporary acquiring of an asset just to use it. Generally Pvt schools are build on lease land. Interest on lease is fully exemption from tax.
Particulars Lease Hire Purchase 1. Ownership of Asset Ownership lies with the lessor. Lessee has the right to use only. Hirer becomes the owner
subject to full installment is paid. 2. Depreciation It is claimed as an
expense in the books of lessor. It is allowed to the hirer in case of hire purchase transaction. 3. Rental Payments Rentals cover the cost of using an asset. Installment is inclusive of the
principal amount and the interest for the time period the asset. 4. Duration It is done for longer
duration. It is done mostly for shorter duration 5. Tax Impact Total lease rentals are
shown as expenditure. Hirer claims the depreciation of
asset as an expense. 6. Repairs &
Maintenance
responsibility Lessor is responsible in
case of operating lease. Hirer is responsible.