Procedure of Leasing in India
1. Assessment of Asset Requirement
Before initiating a lease, the lessee (user) identifies the need for a specific asset such as
machinery, vehicles, or property. A cost-benefit analysis is done to decide whether leasing is
more viable than purchasing.
2. Selection of Lessor
The lessee then identifies and evaluates potential lessors (leasing companies, banks, or
NBFCs) offering competitive terms. The reputation, lease offerings, and support services of
the lessor are critically assessed.
3. Negotiation and Finalization of Terms
Once a suitable lessor is selected, both parties negotiate the terms of the lease—such as
lease period, monthly rentals, maintenance responsibilities, and penalties. These terms are
mutually agreed upon to avoid future disputes.
4. Execution of Lease Agreement
A formal lease agreement is signed by both parties, outlining all terms, responsibilities, and
legal obligations. This document is legally binding and must comply with the Indian Contract
Act, 1872.
5. Delivery and Installation of Asset
After signing the agreement, the asset is delivered to the lessee. In case of equipment or
machinery, the lessor may also assist in its installation and testing.
6. Lease Period Operations
During the lease term, the lessee uses the asset as per agreed terms and pays periodic
lease rentals. The lessor retains ownership, but the lessee bears costs like maintenance or
insurance, depending on the lease type (operating or financial).
7. Termination or Renewal of Lease
At the end of the lease term, the lessee may choose to return the asset, renew the lease, or
purchase the asset (if a purchase option is provided). Final settlements are made, and
ownership transfer may take place based on agreement.
Current Scenario of Leasing in India
1. Growing Popularity Among Businesses
Leasing is gaining traction among Indian businesses, especially MSMEs and startups, due to
its asset-light advantage. It helps companies access high-cost equipment or vehicles without
upfront capital expenditure.
2. Rise of Equipment and Vehicle Leasing
There has been a significant rise in the leasing of vehicles (especially EVs), IT equipment,
and industrial machinery. Many firms now prefer leasing over owning to maintain operational
flexibility and manage depreciation risks.
3. Increased Role of NBFCs and Fintechs
Non-Banking Financial Companies (NBFCs) and fintech startups are driving innovation in
the leasing space. They offer faster approvals, digital onboarding, and customized leasing
options, especially for small businesses and gig workers.
4. Favorable Tax and Accounting Treatment
Leasing continues to enjoy favorable tax treatment, as lease rentals are treated as business
expenses. The introduction of Ind AS 116 (aligned with IFRS) has also made lease
accounting more transparent for listed companies.
5. Emergence of Operating Leases in Consumer Markets
Operating leases are increasingly being used in consumer segments like smartphones,
furniture, and appliances. Companies like Rentomojo and Furlenco have popularized
subscription-based models for urban millennials.
6. Challenges in Legal and Regulatory Framework
Despite growth, leasing in India still faces challenges like complex documentation, lack of
asset repossession clarity, and absence of a unified leasing law. Regulatory clarity and ease
of dispute resolution are needed to boost confidence.
7. Future Outlook and Digital Transformation
The future of leasing in India looks promising with digital transformation, growing
e-commerce, and shared economy trends. With increased focus on sustainability and
cost-efficiency, leasing is likely to become a mainstream financing option.
