About the EMI vs Lease
Should you buy the machine on a term loan or lease it? Ownership means EMIs, but also depreciation and interest you can deduct, and an asset with residual value at the end. Leasing means a fully deductible rent, no down payment and no residual — and usually a higher total outlay. The answer depends on your tax rate, the depreciation block, the interest rate and how long you will keep the asset.
This calculator lays both routes side by side over the same term: for the loan, the EMI, total interest, the tax shield on interest and depreciation, and the residual value you keep; for the lease, the total rent and its tax shield. The after-tax net cost of each is compared and the cheaper route is named.
Enter your figures as quoted by the bank and the lessor. The comparison ignores GST on lease rentals (creditable for most registered businesses) and the time value of money; for large decisions run an NPV of both cash-flow streams with the IRR & NPV calculator.
How to use it
- 1Enter the asset price, the down payment percentage, the loan rate and the term in months.
- 2Enter the monthly lease rent for the same term.
- 3Enter your tax rate, the depreciation rate for the asset block and the residual value you expect.
- 4Compare the after-tax net cost of buying and leasing.
How this is calculated
Buy: EMI on (price − down payment); total outlay = down payment + EMI × months; tax shield = (interest + WDV depreciation over the term) × tax rate; net cost = outlay − shield − residual value Lease: total rent = rent × months; net cost = rent − rent × tax rate
Frequently asked questions
Why does buying come out cheaper even with interest?
Because ownership brings two tax shields — interest and depreciation — and an asset you can sell or keep using after the loan ends. Leasing wins when the lease rate is low, the asset becomes obsolete quickly or you cannot use the depreciation.
Does the lease rent include GST?
Enter the rent before GST; a registered business usually claims the GST as input credit. If you cannot, add it to the rent.
What residual value should I use?
What the asset will fetch (or be worth to you) at the end of the term — often 10–30 % of cost for machinery and vehicles. A conservative figure keeps the comparison honest.
Is the depreciation the tax rate or the book rate?
Use the Income-tax WDV rate for the block, since the tax shield is what changes cash. The depreciation calculator lists the rates.