Bajaj Auto Ltd. said on Monday that it will record a one-time tax provision of Rs 211 crore in its second-quarter profit for the current financial year. This follows changes in how tax is calculated on debt mutual fund investments, similar to the action taken by Maruti Suzuki India Ltd.
The company will increase its deferred tax provision by Rs 211 crore due to the removal of the indexation benefit on debt mutual funds as outlined in Budget 2024, the two-and-three wheeler said in a statement to the exchanges, adding that the impact will be reflected in the profit after tax for the July-September quarter of the financial year-ending March 2025.
Finance Minister Nirmala Sitharaman, in her annual budget speech last month, said that the long-term capital gains on debt mutual funds held for more than three years will be taxed at a flat rate of 12.5% without indexation benefits. The short-term capital gains on debt mutual funds held for less than three years will be taxed according to the income tax slab.
The company said that the provision aligns with accounting standards and the recent tax changes. The actual tax payment will occur when these mutual funds are redeemed, and the cash outflow may differ based on the actual gains and the prevailing tax regime at that time.
Bajaj Auto invests surplus funds in various asset classes, including debt mutual funds. "In compliance with Ind AS 12, the company was making accounting provisions for Deferred Tax as perapplicable law (taking cognizance of the indexation impact) on fair value gains on these investments," it said.
With the withdrawal of the indexation benefit and changes in the tax rate, Bajaj Auto must restate its deferred tax provisions on investment income, the company added.
Bajaj Auto further clarified that this provision affects the deferred tax related to income from investments and does not impact the company's operating performance or profit.
On Saturday, Maruti Suzuki India Ltd. also announced a one-time tax provision of Rs 850 crore in its second-quarter profit for the fiscal 2024-25 due to similar changes in tax calculations for debt mutual fund investments.
Shares of Bajaj Auto closed 1.11% lower at Rs 9,770.70 apiece, compared to a 0.02% fall in the benchmark BSE Sensex.
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