A hire purchase agreement is in many ways similar to a lease agreement, in so far as the terms and conditions are concerned. The important clauses in a hire purchase agreement are:
Nature of Agreement: Stating the nature, term and commencement of the agreement.
Delivery of Equipment: The place and time of delivery and the hirer’s liability to bear delivery charges.
Location: The place where the equipment shall be kept during the period of hire.
Inspection: That the hirer has examined the equipment and is satisfied with it.
Repairs: The hirer to obtain at his cost, insurance on the equipment and to hand over the insurance policies to the owner.
Alteration: The hirer not to make any alterations, additions and so on to the equipment, without prior consent of the owner.
Termination: The events or acts of hirer that would constitute a default eligible to terminate the agreement.
Risk: of loss and damages to be borne by the hirer.
Registration and fees: The hirer to comply with the relevant laws, obtain registration and bear all requisite fees.
Indemnity clause: The clause as per Contract Act, to indemnify the lender.
Stamp duty: Clause specifying the stamp duty liability to be borne by the hirer.
Schedule: of equipments forming subject matter of agreement.
Schedule of hire charges.
The agreement is usually accompanied by a promissory note signed by the hirer for the full amount payable under the agreement including the interest and finance charges.
So far we discussed the legal aspect, let’s now discuss the taxation aspect of the hire purchase agreement.