Introduction And Meaning Of Leasing
Lease refers to the rental agreement between the owner (lesser) and the
user (lessee) in which lessee get the right to use the asset. In this
contract, user agrees to provide monetary compensation (known as lease
rentals) to the lessee or owner for using his/her property. Ownership of the
asset will remain with the lesser and lessee cannot sell or transfer the
item to the third party.
Features Of Leasing
The main characteristics of features of leasing can be described as
follows:
1. A Legal Contract
Lease is a financial contract between the owner and the user of the asset
for the use and control of the property.
2. Involves Two Parties
Two parties are involved in lease agreement:
a) Owner of the property known as lesser
b) User of the property known as lessee
3. Repairing And Maintenance
User (lessee) is responsible for repairing and maintaining the property as
he is the user of the item.
4. Ownership Of Asset
In leasing, ownership of asset is not transferred to the user and he/she
should return the item after the completion of lease period.
5. Fixed Rental Payment
User should pay the owner a fixed amount of lease rental throughout the
leasing period.
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6. Termination Of Contract
Lease contract will be terminated at the end of the period and asset is
taken back by the lesser.
7. Tax Benefits
Lessee can enjoy tax benefit on interest (added on lease rentals) and can
claim depreciation deduction of the property he used.
