Section 32 : Characterisation of payment under annuities, instalment sale and financial lease

Estimated reading: 4 minutes 9 views

1) Any payment made by the person who acquires a property under annuities or instalment sale or payment made to any person for the use of any property under a financial lease has to be treated as the interest and return of capital under the debt claim under this Section.

2) All payments referred to in sub-section (1) have to be calculated in gross, and the total sum thereof has to be divided into two portions as follows:-

a) Capital portion comprising all payments for annuities as per necessity or equivalent to the market value of any property at the time of selling that property by instalment or leasing it, and

b) Interest portion to be set by subtracting the capital portion from the total sum of all payments referred to in Sub-section (1).

3) According to sub-section (2), while determining the instalment at the time of annual subscription, instalment sale or financial lease, the total payment schedule shall be provided by clearly separating the part of the capital and the part of interest. In the event of failure to provide a schedule in accordance with this, the interest and capital portions shall be divided into payments pursuant to sub-section (1) in the form of a compound loan with interest to be taken by adding six months to the annual lease, instalment sale or financial lease.

4) The borrower has to pay the principal in part and the interest in part by working out the portion of interest in the due and payable principal at the time of each payment in a manner that the rate of interest is the same during the period of a loan of payment to be made pursuant to sub-section (1) as if it were a mixed loan.

5) The following terms have to be fulfilled in making a lease under a financial lease pursuant to this section:-

(a) Where the lease agreement contains an option that ownership is transferred after the expiry of the validity period of the lease or the lessee can purchase that property at a certain price or a foreseen price after the expiry of the validity period of the lease,

(b) Where the period of the lease exceeds seventy-five percent of the useful life of that property,

(c) Where the estimated market value of that property after the expiry of the period of the lease is less than twenty percent of the market value of that property prevailing at the beginning of the lease,

(d) In the case of a lease that commences prior to the ultimate twenty-five percent life of the useful life of the property, where the current value of the minimum lease payment is equal to ninety percent of the market value of that property at the time of commencement of the period of the lease or more than that, or

(e) Where a property has been prepared in a special manner for the lessee and, after the expiry of the period of the lease, that property is not of practical use for any other person except the lessee.

6) Each payment referred to in sub-section (1) shall be divided into two portions pursuant to sub-section (3), and the interest portion under the debt claim has to be treated as paid or to be paid interest, and the capital portion as repayment of capital.

7) A lessee under a financial lease shall be treated as the person having ownership of the property leased, and the lesser shall be treated as having a debt claim over the lessee.

8) The current value of the lease payment has to be computed by applying a discount rate equal to the normal interest rate.

Explanation: “Period of lease” means and includes an additional period for which the lessee is entitled to have the lease renewed.

Share this Law

Section 32 : Characterisation of payment under annuities, instalment sale and financial lease

Or copy link

Discover Nepal's laws effortlessly. Our user-friendly platform simplifies legal understanding and accessibility, serving individuals throughout the country.