3.

Withholding Tax u/s 194I @ 22.44%: The recent amendment in the Finance Bill has introduced a withholding tax on rentals, adversely affecting the cash flow (which has a cost attached to it) for vehicle leasing companies. This is not justified as a lease rental has a capital recovery component and an interest component. Moreover, the vehicles are financed by loans taken from banks and hence the rate of TDS is too high when compared to the income component of the lease rentals.

The withholding tax should be abolished since a significant component withheld is the capital recovery which is not correct as it is not income.

Suppose the lease rental per month works out to be INR 10,000/-, then withholding tax @ 22.44% will be INR 2,244/-. If we work backwards then the approximate income in the above lease rental should work out to be INR 6,667/-(INR 2,244/33.66%).

But this is not the case as in the above lease rental the interest component is approximately 25% and the rest is capital recovery.

Moreover, since the vehicles are financed by the loan taken from banks, it is the interest margin, which is the actual income which is far less than the interest component itself (an average of 2% of the investment value). It should be noted that even the skill or knowledge oriented services attract a lower rate of withholding tax @ 5.61%.

Hence, for reasons stated above, withholding tax @ 22.44% on capital intensive leasing industry is not at all justified.

4.

Income Tax: Deduction for car loans

A deduction similar to Housing loan should be granted for the car loans as this will lead to a growth in the passenger car segment and will generate higher revenue to the government in terms of Excise duty and sales tax.

Vehicles (Passenger cars) have become a necessity and are no more a status symbol or luxury goods.