Maruti Suzuki’s share price was muted on Monday as investors weighed a one-off tax impact on the carmaker’s books due to a change in tax accounting rules.

What Happened: India’s largest passenger car manufacturer, expects a one-time impact on its net profit during the ongoing September quarter of up to ₹850 crore due to changes in long-term capital gains tax (LTCG) related to debt mutual funds introduced in Budget 2024.

The hit is associated with the withdrawal of indexation benefits while calculating LTCG on debt mutual funds purchased before April 1, 2023. This change, implemented in Budget 2024, alters the tax calculation from 20% plus surcharge and cess with indexation to 12.5% plus surcharge and cess without indexation.

Maruti Suzuki said it is making accounting provisions for deferred tax liability on fair value gains on these investments to comply with regulations. Due to the change in tax regulations, these provisions will now need to be restated.

The company clarified that the tax payment will be made when the funds are redeemed, and the final tax amount may vary from the original estimate of ₹850 crore depending on the actual gain and the applicable tax rate at the time of redemption.

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Tax Headache: For the June quarter, Maruti Suzuki reported a consolidated deferred tax expense of ₹103.7 crore in its profit and loss statement.

Rahul Bharti, chief investor relations officer at the firm, said this tax impact is not related to the company’s operations and will not affect operational profit. Instead, it will affect the tax on other income at the respective future dates when the funds are redeemed.

Maruti Suzuki’s net profit for the June quarter increased by 47% year on year to ₹3,650 crore. Revenue for the quarter rose by 10% from the year-ago period to ₹35,531 crore.

The company’s EBITDA margin expanded by nearly 350 basis points to 12.5% from 9.2% in the same quarter last year, driven by a lower base and reduced raw material costs.

Price Action: Shares of Maruti Suzuki were trading nearly flat at ₹12,209.10 in early trade on Monday. The stock has gained nearly 20% so far this year.

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