Assets may purchased or taken on lease. Apart from tax angle other factors also are important in taking lease or buy decisions like rate of change in technology.
Advantages when Assets are taken on Lease: Lease Rental can be claimed as deduction as revenue expenditure. However Depreciation cannot be claimed since assets are not owned by the assessee.
Advantage when Assets are Purchased: Depreciation on specified assets can be claimed as deduction u/s 32. the Assets may be purchased outrightly or may be taken on loan. Where the asset is taken on loan interest amount can either be claimed as revenue expenditure or can be capitalized. But where interest is paid after the asset is first put us use, the deduction on account of interest shall be claimed as revenue expenditure, i.e. such interest cannot be capitalized.
>> Since the lease rentals and loan are repayable in installments, then the cash outflow for each separate year should be converted into present value of today’s cost, i.e. Cash Inflow.