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Is Company leased car permissible?

Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh. (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

I have a question on company leased car policy :: In a countty like India we dont have a Islamic banking.
Background ::
1. My company is not a financial company but its providing this feature as a benefit to their employees.
2. All transcations will be done by the company from employees kitty.
3. EMI paid byt the employee will be tax exempted.

Info on this Poilicy ::
To facilitate employee to take car on lease for commuting for official purposes.

Company Leased Car Policy
There will be a tripartite agreement which will be signed by employee ,Company, and vendor to enable employees to lease specified new vehicles for a prescribed period of time as

defined in the Lease agreement. The financial cost of the Company Leased Car (CLC) will be borne by the employee and deducted from employees' FBP kitty.

Treatment of CLC Claims:

    * Treatment of EMI - Monthly EMI will be deducted from the kitty for CLC.
    * Treatment of Insurance Premium Claims: Insurance premium claims will be debited from the kitty for CLC.
    * Treatment of claims on Vehicle Accessories: Purchase of vehicle accessories would be reimbursed for the first time for CLC only and would be debited from the kitty. Employees

need to ensure all accessories are claimed in a single instance. No new purchase of vehicle accessories subsequently is allowed to be claimed under the maintenance expense for

    * Treatment of claims on Road Tax: Claims of Road Tax would be reimbursed for CLC only and would be debited from the kitty.
    * Treatment of other claims for CLC: Extended Warranty / Registration Charges / Handling charges / Incidental Charges would be reimbursed for CLC only and would be debited

from the kitty.

Taxation ::
EMI paid by employee will be exempted from Tax.

Interest Rates and Residual value details effective 16th May 2011
Interest rate    
16.00 % for 2 years
14.35 % for 3 years and
13.80 % for 4 years
EMI per lakh    
INR 3968 for 2 years
INR 2941 for 3 years
INR 2447 for 4 years
Constant Residual Value    
30% for 2 years
25% for 3 years
20% for 4 years

Closure of Leases
Normal Closure of Lease
After the lease period is over, employee has an option to
   1. surrender the car to the vendor and take a new car if he/she wishes to , or
   2. in case of constant residual value buy the car by paying the constant residual value plus RTO Charges and agent charges(if any) plus applicable taxes as decided at the beginning

of the lease period

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In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Brother it is very obvious that the company is facilitating you to buy/lease a car you cannot afford. You will be paying interest which is haraam. The company cannot force you to buy a car to commute for official purposes. They should provide the transport for official work. This is just a facility offered to their employees. It stinks of riba and for one who believes in Allah swt and The Last Day it is definitely haraam and should be avoided in totality. 

If you can't afford to buy a car, buy a scooter or motor bike or take a non-interest bearing loan from a friend or relative or save up the monthly premiums you would be paying and buy a car within 2 years. That will be best. Under no circumstances is it necessary to get into debt, pay interest and break the laws of Islam.

Whatever written of Truth and benefit is only due to Allahs Assistance and Guidance, and whatever of error is of me. Allah Alone Knows Best and He is the Only Source of Strength. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Members of Islamhelpline

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