Bajaj Auto’s share price was in positive territory on Tuesday despite the firm having to keep aside additional funds due to changes to taxation under Budget 2024.

What Happened: The auto major said on Monday it needs to adjust its accounting provision for deferred tax on investment income due to the withdrawal of the indexation benefit and changes in the tax rate.

The most recent government Budget removed indexation benefits on long-term capital gains (LTCG) for debt mutual funds purchased before April 1, 2023. Indexation was a method used to reduce the taxable amount by accounting for inflation.

Bajaj Auto, which invests surplus funds into various asset classes, including debt mutual funds, said it had been making accounting provisions for deferred tax based on the old tax laws, which took indexation into account.

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It Isn’t Too Bad: With the new tax changes, the company now needs to increase its deferred tax provision by ₹211 crore to reflect the updated tax rules. However, it does not see the provision as materially affecting the company’s overall financials.

In the Union Budget 2024-25, the tax rate for LTCG on these types of investments was changed from 20% with indexation previously to 12.5% without indexation.

Bajaj Auto stated that this one-time impact will be accounted for when calculating its profit after tax and will be reflected in its financial results for the second quarter of FY25.

The company said this is only an accounting provision at this time, made to align with the applicable accounting standards and the new tax law. The actual tax payment will occur when the mutual funds are redeemed. The amount of tax due at that time may differ, depending on the actual gains and the tax laws in place at the time of redemption.

Maruti Suzuki said last week that it has also made similar provisions for deferred taxes due to the change in tax rules.

Price Action: Bajaj Auto’s share price was trading 0.23% higher at ₹9,793.10 in morning trade on Tuesday.

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