Bajaj Auto to Increase Deferred Tax Provision by Rs 211 Crore

Key Highlights:

• Bajaj Auto will raise its deferred tax provision by Rs 211 crore due to new tax rules.
• A one-time impact will be recorded in Q2 FY25 results.
• The actual tax will be paid when the mutual funds are redeemed.

Bajaj Auto announced on Monday, August 19, 2024, that it will have to increase its allowance for deferred tax by Rs 211 crore due to the removal of indexation benefits and a change in the tax rate on long-term capital gains on debt mutual funds, PTI reported.

The automaker allocates its excess assets among a range of asset types, including debt mutual funds. According to a regulatory filing, the company has made provisions for deferred tax on fair value gains on investments in accordance with applicable law.

One-Time Impact on Financial Results

The company also stated that a one-time impact would be made when computing earnings after tax and presenting financial results for the second quarter of FY25.

Bajaj Auto also stated that the Finance (No 2) Act 2024 eliminates the indexation benefit on long-term capital gains on debt mutual funds acquired prior to April 1, 2023.

The accounting provision for Deferred Tax on Investment Income, which was formed in response to the loss of the indexation benefit and the change in the tax rate, must be restated, according to the report.

The company further stated that only a provision is being made in the books of accounts at this time to record the deferred tax in accordance with the applicable accounting standards and the newly passed tax amendment.

The actual tax payment will be made when the mutual funds are redeemed. The cash outgo for tax may fluctuate at the time of redemption based on the actual gain and the current tax regime, it noted.

Also Read: Bajaj Auto Reports 19% Net Profit Growth in Q1 2024

CMV360 Says

This move from Bajaj Auto shows how companies have to adapt quickly to changes in tax laws. It might cause some concern among investors since it affects the company’s financial results in the short term. 

However, it’s important to remember that this is just a provision, and the actual impact will be seen later when the investments are redeemed. It highlights the uncertainty businesses face with changing regulations, but also their ability to manage these challenges.