Should I go for car leasing option offered by my company or buy my own car?

Car Lease

Car leasing is becoming popular among employees who are planning to buy their car through bank loan. Company provides option to employees to buy car- any make any model as per employee eligibility accordingly to company car lease policy depending upon employee’s grade. Best thing is that employee needs not to pay any down payment. Employee simply starts paying lease amount on monthly basis. It is becoming a prominent option in compensation structure of high paid employees. This is offered to employee as an option and it is employee wish to choose or not to choose.

Now question is “Car leasing is a good option for employees? Lets understand first, what is this car leasing plan all about?

Employer ties up with a car leasing company which provides cars on lease and design a company policy for car leasing. If an employee who is eligible for car leasing option can express his willingness and mention model and make of car to buy. Leasing company will buy the car for employee and give it to employee for use – both official and personal. Car will be in name of leasing company. Employee will pay monthly lease amount to leasing company which is normally lower than EMI, if employee goes with bank loan option. Car lease period normally range from 3 to 5 years. After lease period is over employee can either choose to buy the car by paying agreed residual price (20% to 45% of car purchase value) depending upon company policy or let the leasing company keep it. Employee can go for another lease or buy a new one.

What are the benefits to employee?

No down payment is required

Employee need not to make any down payment to lease the car. This is a clear cut saving and employee can use this amount anywhere else. Employee can also make a fixed deposit of this down payment amount and can get good interest rate. Employee enjoys his new car from day one without being worrying arrangement for down payment.

Lower monthly lease amount as compared to Bank EMI

Lease amount paid to lease company is always lower than Bank EMI. Lease amount is calculated after reducing projected sale value of car after lease period wherein Bank EMI is on full value of Car.

Employee need not to worry about car maintenance, service and insurance etc

Employee need not to worry about any paper work, car maintenance, regular service, insurance etc. Leasing company take cares of the same and it is including in monthly lease amount payable by employee. There are options available to not to take maintenance option where monthly lease amount will further reduce but employee need to take care of maintenance of vehicle. Lease companies do also provide break down assistance, replacement car in case car service take more than 24 hours, Chauffeurs etc.

It saves a lot of time of employee.

Tax saving on lease amount paid by employee

In case an employee pay Rs 20,000/- per month as car lease and employee falls in 30% tax bracket then employee clearly saves Rs 6,000/- per month on tax (30% of Rs 20,000). Hence it is clear that car leasing is more beneficial to employees who fall under higher tax bracket. Employee who falls in lower tax bracket like 10% will not be that much beneficial.

Wherein if an employee takes bank loan and pay EMI of Rs 20,000/-, then employee will not get any tax benefits as employer will deduct tax on Rs 20,000.

Further, employee can also take fuel expenses and driver salary from company if an employee use the car for official purpose and this will be non taxable money. Hence further tax saving. Commuting from Office to home and vice versa will not be considered as an official travel and fuel expense can not be claimed against the same.

Benefits are more if employee stays with company for longer period

Return on Car lease option is higher if employee stays with company for longer period and do not change the job again and again.


What are the cons for employee in car leasing?

Car is not owned by employee even after lease tenure is over

Even after your car lease tenure is over car do not belongs to you. It is still company’s property. After lease period is over employee can either choose to buy the car by paying agreed residual price (20% to 45% of car sales value) depending upon company policy or let the leasing company keep it. Employee can go for another lease and buy a new one where in case of Bank Loan, Car is owned by person after loan period is over.

Interest rate is higher in leasing as compared to Bank Loan

Interest rate is higher in leasing as compared to Bank Loan. Monthly Leasing amount is lower because it is calculated on car value after reducing projected sale value of car after lease tenure wherein Bank Loan EMI is calculated on 100% car sale value from day one. That’s the reason lease amount is lower wherein lease interest rate is higher.

Example : If Car sale value is Rs 10,00,000 and lease tenure is 5 years and projected sale value of car @ 20% i.e. Rs 2,00,000 at end of 5 years then lease amount will be calculated on Rs 8,00,000 ( Rs 10,00,000- Rs 2,00,000).

Employee still needs to pay some tax

As per tax laws, when you use a company car, the employee has to pay a perquisite tax. For a car which is less than 1.6cc, the perquisite value is .Rs 1,800 per month; while for cars more than 1.6cc, the perquisite value is .Rs 2,400 per month. This means for a car greater than 1.6cc the employee will pay a tax of Rs 741.6 per month.

Employee cannot take tax benefit on conveyance allowance

If an employee chooses for car lease option then conveyance allowance paid to employee automatically becomes taxable. Rs 800 per month conveyance allowance paid to employee to travel between office to work and vice versa is non taxable but becomes taxable if an employee choose car lease option.

Car leasing is costlier deal if you leave the company in between or want to terminate the lease before lease tenure completion

Although, there is option available to employee to terminate the lease in between but It is always costlier affair. If an employee leaves the company then employee is left with following options:

  • Employee need to pay amount asked by leasing company if employee want to buy the car
  • Employee can transfer the lease to some other employee provided some other employee is willing to take that car.
  • Employee leave the car for leasing company

Some companies do also keep penalty charges in case of mid termination of car leasing.

You become second owner if you choose to purchase your leased car

As mentioned earlier that car you choose to lease is in name of the leasing company however you have purchase option after lease period is over but in that case car will be registered in your name again and you will become second owner. For many people, this does not matter but for some it does.

Car leasing can be a good option depending upon in which tax bracket you fall into, what are your plans to be with same company for longer period or do you have money for down payment etc. It can be good deal or bad deal depending upon your case. Hope above information will help you to take your decision. Please write back to me in case you have any query.


  1. Lincy Scaria July 10, 2014 5:23 am  Reply

    Ver Informative. Thankyou Govind

    • govindsinghnegi April 22, 2015 3:15 pm  Reply

      Dear Lincy,

      Thanks for your appreciation. This means a lot to us.

      • Vikas Grover November 17, 2015 5:32 pm  Reply

        Hi Govind. My total salary is 20 lacs out of this my fixed salary is 16 lacs. My current tax deduction per month is 16500 app. Leased company has given me app EMI for 3 years of the car to be 29500 for 3 years. My tax saving would be app 10000 for 3 years in company lease and if I go with buying my own car it would like 21000 per month EMI for 5 years with 2 lacs of down payment and then insurance for 5 years and maintenance. I am confused which option shall I go with. Company lease or buying my own car. Can you please help. You can mail me on

      • mkchoudhary September 15, 2017 6:18 am  Reply

        Hello Govind jee,

        My brother aged 44 years worked for HCL as senior manager. He had taken Swift Desire Petrol version on company lease 2 years back. He expired recently due to illness in hospital. There is wife who has no driving license as nominee and a minor daughter behind. When the wife approached HCL for full and final settlement. HCL HR is forcing to keep the car and deducting 29% GST from the final settlement. Wife does not and can not keep the car, the car is in the name of HCL and my query is can the leasing company force to deduct 29% GST and what is the best possible way out to settle the issue.

  2. Radhakant July 21, 2014 7:41 pm  Reply

    I have a doubt, if in case I want to leave the company and in between the lease period. What amount should i pay. Should i pay the re remaining amount as part of Principal amount and VAT or i have to pay the total amount to be paid through EMI including the further interests till the lease tenure end?

  3. Rahul January 29, 2015 10:45 am  Reply

    pls confirm about the calculation of INR741.6 as payble tax in the example above.

  4. Nirmal Ram P K April 14, 2015 4:23 am  Reply

    Well explained thanks a lot for a such informative article.

    • govindsinghnegi May 14, 2015 3:35 pm  Reply

      Dear Nirmal,

      Thanks for your appreciation. It means a lot to us

  5. Swapnil May 11, 2015 12:20 pm  Reply

    Very Nice Info …Appreciate the efforts

    • govindsinghnegi May 14, 2015 3:35 pm  Reply

      Dear Swapnil

      Thanks a lot. It means a lot to us

      • Durgaprasad May 28, 2015 10:40 pm  Reply

        Dear Govind, one more point, as per my knowledge RTO registration cost for company leased car is usually double than the own car. This also needs to be considered while taking the decision. Your comments please.

  6. Employee Lease Services June 4, 2015 12:21 pm  Reply

    Employee leasing is a contractual arrangement in which the leasing company, also known as a professional employer organization (PEO), is the official employer.

  7. parag agarkar June 19, 2015 9:07 am  Reply

    My company is providing this option. I’ve a 7 yr old car and feel this option will be good to change it (sell it on my own and opt for company leased vehicle). However the mian reason will be to save tax. The EMI per lakh of leased vehicle will be Rs. 2600 (they said 12.5% interest on reducing balance) and insurance will be additional. Suppose if I can spend EMI = 24000, I believe I can take a car of max. 9 lakhs (doubt : on-road Or ex-showroom?). Tax saved per month = 8000. Is my understanding right ? I’ve ignored insurance in this calculation.

  8. Venkat August 11, 2015 4:41 pm  Reply

    Very informative. But my company is asking for a 20% down payment initially with the residual value of 20% after 5 years. i’m falling under 30% taxation category but with my math i still see company car lease is not beneficial. let me know.

    • HR SUCCESS TALK May 16, 2016 4:26 am  Reply

      It could not be a beneficial. Every needs to do own calculation

  9. shilpa pandey April 19, 2016 4:00 am  Reply

    i want to know is it benificial to buy car on company lease more than entitled amount ? Suppose it is 6 lacs & i buy 8 lacs

  10. Kumar May 9, 2016 5:36 am  Reply

    Good article. You have mentioned that for the employee, there would be a tax saving of Rs.6000/- per month in taxes (tax bracket 30%). Please let me know under which section of the income tax act, is lease payments made by individuals is allowed to be deducted from salary income.

  11. K S Ravindran June 6, 2016 10:53 am  Reply

    Can you please let me know whether the difference in lease which has to be paid for short closing the lease say if the lease is planned for 3 years and an EMI of 25K is paid and this is terminated in 1 year wherein the EMI for 1 year will be approx 40K, the difference value of 15K * 12 = 180K to be paid will be exempted from tax.

  12. Umesh June 11, 2016 11:10 am  Reply

    Very Useful Info

  13. jai June 16, 2016 5:34 pm  Reply

    very usefull information

  14. Chaitanya Deepak July 29, 2016 6:23 am  Reply

    hi this is Chaitanya here I have a query and my company has given CTC car and it works like we get the car DD from one bank in which company is also operating and we are to pay the emi at increased %age interest andcar is registered in company name , at the end of tenure should we pay perquite tax as company benefitted for 5 yrs tenure for example depreciating the asset and taxing the employee for ex 30% slab is this ok does the income tax policy says this please confirm

  15. Deepak August 6, 2016 4:40 pm  Reply

    Nice information and complete. Thanks

    • HR SUCCESS TALK September 24, 2016 3:17 am  Reply

      Dear Deepak,

      Your feedback matters a lot to us. Appreciate.

  16. Venkatesh September 4, 2016 3:23 am  Reply

    Very informative and well explained. Thanks Govind.

    • HR SUCCESS TALK September 24, 2016 3:18 am  Reply

      Dear Venkatesh,

      Thanks a lot for your appreciation

  17. NA NA October 18, 2016 3:59 pm  Reply

    Nice article. In the above case, whether lease from some relative of employee is legally permissible as tool of tax planning?

  18. ARAVIND October 24, 2016 10:09 am  Reply


    I’m Aravind, this car lease program is applicable only for new cars or for used cars as well. If for used cars, what is the criteria & eligibility? also do we need to reserve any amount from our Fixed CTC.

    Thanks in advance.

  19. Francis December 1, 2016 3:38 am  Reply

    Thanks for this excellent information

  20. Gangadhar December 18, 2016 8:16 am  Reply

    I want to give my car lease

  21. rajesh January 17, 2017 11:07 am  Reply

    Hi Govinda,
    pl let me know under which section the deduction of interest on lease for car is eligible.

  22. Rakesh Uniyal February 13, 2017 6:05 am  Reply

    Very useful information. Exactly what I was looking for. My company and colleagues were not able to give a clear picture on leasing. But thanks for a clear explaination.

  23. MAHESH February 25, 2017 2:25 pm  Reply

    My fixed pay is Rs. 19 Lacs. I am planning to buy Tata Hexa. Is it more worthwhile to avail car lease than buying it outright or by availing a loan. Regards.

  24. deep July 5, 2017 2:53 pm  Reply

    is leased car in IBM need a good cibil score. As I have very low cibil can anyone aanswer

  25. Ravichandran July 19, 2017 12:10 pm  Reply

    While I go in for a company car lease, can I still use company transport for commuting from residence to office & back

  26. Aman October 17, 2017 8:44 am  Reply

    Hello sir mam. I have lease my car in our company contact 9971301028

  27. abrk April 18, 2018 1:40 pm  Reply

    Very descriptive information .Liked it .very well explained going with car lease

  28. krishna June 11, 2018 6:23 am  Reply

    What if the employee takes the car for the lease and use it for the both official and personal purpose?

  29. Candy Smith October 10, 2019 5:29 am  Reply

    Very informative blog, Exactly, What I was looking for. Keep sharing.

  30. Dharmesh Kansara March 1, 2020 2:56 pm  Reply

    Very good information. Thanks for sharing

  31. surekha April 22, 2020 11:48 am  Reply

    For sez zone, when car is surrendered at the time of tenure, GST is calculated or not

  32. Atul Yadav February 14, 2021 5:28 pm  Reply

    I am planning to take Tata Harier ( on road price 24lacs) for 5 years, How much will the monthly payment be ?? will it be 2.4K*24 = 57.6K per month for 5 Years, or only 2.4K per month for 5 Years ??

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