The company, which invests surplus funds into various asset classes including debt mutual funds, has been making accounting provisions for deferred tax based on fair value gains as per applicable laws. Bajaj Auto stated in a regulatory filing that the recent tax changes necessitate a one-time adjustment while computing the profit after tax.
The Finance (No 2) Act 2024 has eliminated the indexation benefit on long-term capital gains from debt mutual funds purchased before 1 April 2023. Additionally, the tax rate has been revised from 20% plus surcharge and cess (with indexation) to 12.5% plus surcharge and cess (without indexation).
"Further, the tax rate with respect to long-term capital gains for the said asset class has been changed from 20% plus surcharge and cess (with indexation) to 12.5% plus surcharge and cess (without indexation)," it added.
As a result, Bajaj Auto needs to adjust its accounting provision for Deferred Tax on Investment Income. The company clarified that the current provision for deferred tax would need to be increased by INR 211 crore to account for this tax change.
"The current accounting provision for deferred tax created by the company would need to be increased by INR 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.
Bajaj Auto emphasized that this adjustment is a provision in line with applicable accounting standards and the recently enacted tax change, rather than an immediate cash outflow.
The actual tax payment will occur upon the redemption of these mutual funds, and the amount could differ based on actual gains and the tax regime at the time of redemption. "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.
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