Bajaj Auto Hits with ₹211 Crore Tax Adjustment After Indexation Benefit on Debt Mutual Funds is Withdrawn

Bajaj Auto Ltd announced on Monday that it will increase its accounting provision for deferred tax by ₹211 crore. This adjustment is due to the withdrawal of the indexation benefit and a change in the tax rate, which impacts the company’s investment income.

The Finance (No. 2) Act, 2024, has removed the indexation benefit on long-term capital gains (LTCG) for debt mutual funds purchased before April 1, 2023. Bajaj Auto, which invests its surplus funds in various assets, including debt mutual funds, must now adjust its tax accounting accordingly.

According to the company, under the Indian Accounting Standard (Ind AS) 12, they have been making provisions for deferred tax based on the law, including the indexation impact on the fair value gains of these investments. With the recent tax changes, the company must increase its current deferred tax provision by ₹211 crore to reflect these changes.

Although this amount is significant, Bajaj Auto stated that it falls below their materiality threshold. The Union Budget 2024-25 changed the LTCG tax rate for these assets from 20% plus surcharge and cess (with indexation) to 12.5% plus surcharge and cess (without indexation).

The company mentioned that this provision for the one-time impact will be made when calculating the Profit After Tax and reporting financial results for the second quarter of FY 2024-25. Bajaj Auto also clarified that this is only a book adjustment to align with the new accounting standards and tax laws, and the actual tax payment will occur when the mutual funds are redeemed. The final tax amount may vary based on the actual gains and tax rules in effect at the time of redemption.