What is redemption payments

To understand what is redemption payments, refer to the concept of "leasing" and some aspects of its provision. Leasing is a special kind of loan for acquisition of fixed assets. When making leasing the service user receives a property (subject of leasing) for temporary possession for a fee in the form of special lease payments. The use of leasing provides entrepreneurs with significant tax advantages, and the right of redemption of the leased asset at the end of the lease agreement.

In other words, leasing is a long-term lease of property for use in the interests of their business, the main feature of this rental is the possibility of granting the lessee the right of purchase of the property and the provision of tax incentives.In those cases, when it comes to redemption of the leased asset, and there are the redemption payments. In the lease agreement, provided that it implies the further possibility of redemption of the leased asset, specify the so-called cash surrender value of the property. Accordingly, payments under such contract, the entrepreneur will pay lease payments – those provided for in the contract as payment for the use of property, and redemption payments – the ones that will be taken into account in payment of the redemption value of the property at the expiration of the term of the contract.Thus, the redemption payments is payments under the lease agreement, which aimed not to pay the rights of ownership to the leased asset, and to repay the redemption value of the leased asset for later retrieval into permanent property.There may be situations when in the leasing contract States that after making the total volume of leasing payments, the property becomes the property of the lessee, the amount of the surrender value in the contract no. In such cases, all make leasing payments for the period of performance of obligations under the contract will be regarded as the redemption, are properly taxed and accounted for.Redemption payments provide the user with leasing the possibility of incremental payment for registration of ownership of the leased item as an alternative to making a full surrender value upon termination of the lease agreement.