Bajaj Auto to increase accounting provision for deferred tax by ₹211 crore due to indexation benefit withdrawal

Bajaj Auto Ltd on Monday said due to withdrawal of the indexation benefit and change in tax rate, the accounting provision for deferred tax on investment income needs to be restated.

The Finance (No. 2) Act, 2024 has withdrawn the indexation benefit on long-term capital gains (LTCG) on debt mutual funds which were purchased prior to 1 April 2023.

The company said it invests surplus funds into a range of asset classes including debt mutual funds.

“In compliance with Ind AS 12, the Company was making accounting provisions for Deferred Tax as per applicable law (taking cognizance of the indexation impact) on fair value gains on these investments,” Bajaj Auto said in a statement.

“The current accounting provision for Deferred Tax created by the Company would need to be increased by ₹211 crores to recognise the aforesaid change,” the company said.

The provision amount of ₹211 crores is below the materiality threshold, it added.

In the Union Budget 2024-25, the tax rate with respect to LTCG for the said asset class was changed from 20% plus surcharge and cess (with indexation) to 12.5% plus surcharge and cess (without indexation).

“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,” said Bajaj Auto.

The company further said that 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.