Bajaj Auto Faces ₹211 Crore Tax Hit: Deferred Provision Hiked After Indexation Benefit Withdrawal

Bajaj Auto Ltd announced on Monday that it will need to increase its provision for deferred tax by ₹211 crore due to recent changes in tax laws. These changes involve the withdrawal of the indexation benefit and an adjustment in the tax rate on long-term capital gains for debt mutual funds.

Impact of Tax Law Changes on Deferred Tax

The company, which invests its surplus funds in various asset classes, including debt mutual funds, has been making accounting provisions for deferred tax based on fair value gains on these investments, as required by law. Bajaj Auto shared this information in a regulatory filing.

One-Time Impact on Q2 FY25 Financial Results

This adjustment will have a one-time impact on the company’s profit after tax and will be reflected in the financial results for the second quarter of the fiscal year 2024-25 (Q2 FY25).

Details of the Finance (No 2) Act 2024

The Finance (No 2) Act 2024, which came into effect recently, removed the indexation benefit for long-term capital gains on debt mutual funds purchased before April 1, 2023. Previously, these gains were taxed at 20% plus surcharge and cess with indexation. However, under the new law, the tax rate has been reduced to 12.5% plus surcharge and cess, but without the indexation benefit.

Revised Accounting Provisions

Due to these changes, Bajaj Auto explained that its existing accounting provision for deferred tax on investment income must be revised. The company said it will need to increase this provision by ₹211 crore to account for the new tax rules. This adjustment will be included in the profit after tax calculation for Q2 FY25.

Provision for Deferred Tax: Future Implications

The company emphasized that, for now, this is only an accounting provision to record the deferred tax in accordance with applicable accounting standards and the recent tax law changes. The actual tax payment will occur when these mutual fund investments are redeemed. The amount of tax paid at redemption could vary depending on the actual gains realized and the tax laws in effect at that time.