Bajaj Auto to Increase Deferred Tax Provision by £211 Crore After Tax Benefit Withdrawal

Bajaj Auto Ltd announced on Monday that it will need to increase its provision for deferred tax by Rs 211 crore. This adjustment is due to the withdrawal of the indexation benefit and a change in the tax rate on long-term capital gains from debt mutual funds. The company invests its surplus funds in various asset classes, including debt mutual funds.

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Impact of Tax Changes

The Finance No 2 Act 2024 has removed the indexation benefit on long-term capital gains for debt mutual funds purchased before 1 April 2023. Additionally, the tax rate for these gains has been altered from 20 per cent plus surcharge and cess with indexation to 12.5 per cent plus surcharge and cess without indexation. Bajaj Auto stated that this change necessitates a restatement of the accounting provision for Deferred Tax on Investment Income.

The company explained that the current accounting provision for deferred tax must be increased by Rs 211 crore to reflect this change. This adjustment will be recorded while computing the profit after tax and reporting financial results for Q2 of FY25. Bajaj Auto clarified that this is a one-time impact.

Deferred Tax Provision

Bajaj Auto mentioned that only a provision is being made in the books of accounts at this time to record the deferred tax in line with applicable accounting standards and recent tax changes. The actual payment of tax will occur at the time of redemption of these mutual funds. The cash outgo towards tax could vary at redemption, depending on actual gains and the prevailing tax regime.

The company invests its surplus funds into a range of asset classes, including debt mutual funds. It was making accounting provisions for deferred tax as per applicable law on fair value gains on these investments, Bajaj Auto said in a regulatory filing.

A one-time impact will be made while computing the profit after tax, and reporting the financial results for Q2 of FY25, it added.

Bajaj Auto said the Finance No 2 Act 2024 withdraws the indexation benefit on long-term capital gains on debt mutual funds purchased before 1 April 2023. Further, the tax rate with respect to long-term capital gains for the said asset class has been changed from 20 per cent plus surcharge and cess with indexation to 12.5 per cent plus surcharge and cess without indexation, it added.

Due to the withdrawal of the indexation benefit and change in tax rate, the accounting provision for Deferred Tax on Investment Income so created needs to be restated, the company said.

The current accounting provision for deferred tax created by the company would need to be increased by Rs 211 crore to recognise the aforesaid change.

A provision in respect of this cumulative one-time impact will be made while computing the profit after tax and in reporting the financial results for Q2 of FY 2024-25, it added.

The company further said only a provision is being made in the books of accounts at this point in time to record the deferred tax in line with the applicable accounting standards and the recently enacted tax change.

The actual payment of tax would be made at the time of redemption of these mutual funds. The cash outgo towards tax could be different at the time of redemption depending on the actual gain and actual prevailing tax regime, it added.