What is the GST treatment on car leases in India?

Under Section 17(5) of the CGST Act, ITC on motor vehicles used for personal purposes (including employee transport) is blocked. Companies can claim ITC only if the vehicle is used for: (1) further supply of vehicles, (2) transportation of goods, (3) imparting driving training, or (4) making taxable supply including providing passenger transport services. Most company car leases fall under the blocked credit category.

What depreciation can a business claim on a purchased car?

Under the Income Tax Act, cars are depreciable at 15% per year on the Written Down Value (WDV) method. A car purchased for ₹15 lakh can claim: Year 1: ₹2.25L (15% × ₹15L, but only 50% in year of purchase if used for part year = ₹1.125L), Year 2: ₹2.1L (15% × ₹14L), and so on. The WDV never reaches zero — depreciation continues on the reducing balance.

Personal Finance

Lease vs Buy a Car in India: What the Numbers Actually Show

Q: Is leasing a car cheaper than buying in India?

For business owners and companies: leasing is usually financially superior because lease rentals are fully deductible business expenses, GST input tax credit (ITC) is available on commercial vehicles, and capital is not locked in a depreciating asset. For salaried individuals: buying with a loan is generally better because lease GST (28% + cess) is non-creditable, there is no depreciation benefit, and residual value risk remains.

FININ2MIN RESEARCH Updated Jun 2026 · 8 min read

The lease vs buy question for cars in India has no universal answer — it depends on whether you're a salaried individual, self-employed professional, or a company. The numbers diverge dramatically based on GST eligibility, depreciation, and opportunity cost of capital.

Three Options Compared: Operating Lease, Financial Lease, Outright Purchase

Factor	Operating Lease	Financial Lease	Buy (Loan/Cash)
Ownership	Lessor (company)	Lessee (you) at end	Yours immediately
Monthly cash outflow	Lease rental	Lease rental	EMI or zero (cash)
Balance sheet impact	Off-balance sheet	On-balance sheet (Ind AS 116)	Asset + Liability
Depreciation	Lessor's benefit	Lessee claims	Buyer claims
Maintenance	Often included	Lessee's responsibility	Owner's responsibility
End-of-term	Return or renew	Purchase option	Keep/sell

5-Year TCO: ₹15 Lakh Car Scenario

Assumptions: ₹15L ex-showroom, 5-year period, 20% down payment if buying, lease rental ₹35,000/month (operating), loan at 9.5% for 5 years. Business owner at 30% tax bracket.

Item	Buy (Loan)	Operating Lease
Total payments (60 months)	₹22.4L (EMI) + ₹3L down	₹21L rentals
Insurance (5 years)	₹1.8L	Often included
Maintenance	₹1.2L	Often included
Tax deduction (30% bracket)	Interest only ~₹3L benefit	Full rentals ~₹6.3L benefit
Residual value at Year 5	+₹5–6L (asset value)	Zero
Net effective cost	~₹20.4L	~₹14.7L

For a business owner, operating lease is cheaper by ~₹5.7 lakh over 5 years — primarily because 100% of the lease rental is a pre-tax deduction vs. only the interest component of an EMI being deductible.

For Salaried Individuals: Buying Wins

Salaried employees cannot deduct car lease payments or loan interest (unless for business use). The comparison changes fundamentally:

No GST ITC on the lease (blocked under Section 17(5) CGST)
No depreciation benefit (not a business asset)
No deduction for lease rentals from salary income
But you own an asset at the end — the car retains residual value

For salaried individuals, buying (especially with a pre-owned or slightly older model) is usually the more rational financial decision.

Company Car Schemes — The Best of Both Worlds

Some employers offer a car lease through the company as part of CTC. Under this structure:

Company leases the car, employee uses it
Monthly lease rental is deducted from gross CTC (pre-tax)
Perquisite tax applies (typically 1.8–2.4% of car cost per year)
Net saving: employee gets a car + fuel at a lower effective after-tax cost

Example: ₹15L car leased through company at ₹35,000/month. Annual perquisite value: ~₹27,000–₹36,000 (taxable). Vs. if employee buys same car: EMI ₹31,000/month with no tax benefit. Net saving: ₹15,000–₹20,000/year for the employee.

GST on Car Leases — Blocked Credit Explained

Section 17(5)(a) of the CGST Act blocks Input Tax Credit on motor vehicles for transportation of persons unless:

You are in the business of selling cars
You provide transportation services (cab, bus)
You impart driving training

For all other businesses: GST on the lease rental (28% + cess on luxury cars) becomes a cost — you cannot set it off. This significantly increases the effective lease cost.

Frequently Asked Questions

Is leasing a car cheaper than buying in India? ▼

For business owners: leasing is usually cheaper because 100% lease rentals are deductible vs only the interest portion of an EMI. For salaried individuals: buying is generally better because there is no tax deduction available on lease payments or EMI interest, and you own an asset at the end.

What depreciation can a business claim on a car? ▼

Cars are depreciable at 15% per year WDV under the Income Tax Act. On a ₹15L car: Year 1 ~₹1.125L (50% of 15% since typically used part-year), Year 2 ~₹2.1L (15% of ₹14L), and so on reducing. The WDV never reaches zero — depreciation is perpetual on reducing balance.

How does a company car lease work for salaried employees? ▼

Employer leases the car and deducts monthly rental from CTC (pre-tax). Employee pays perquisite tax on ~1.8–2.4% of car cost annually. Net result: employee effectively gets a car + fuel allowance at lower after-tax cost than buying with post-tax salary.

🚗

Run Your Exact Lease vs Buy NPV/IRR Analysis Post-tax cash flows · WDV depreciation shield · GST treatment · EBITDA impact · Balance sheet analysis

Open Lease vs Buy Calculator →