Maruti to increase provision for deferred tax liabilities by Rs 850 crore in Q2 on removal of indexation

Maruti Suzuki India On Saturday, it said it would need to increase the provision for deferred tax liabilities by around Rs 850 crore due to the withdrawal of indexation benefit while calculating long-term capital gains in debt mutual fundsThe company was making accounting provisions for deferred tax liability on fair value gains on these investments, Maruti Suzuki India said in a regulatory filing.

A one-time impact on after-tax earnings will be felt in the second quarter of the current fiscal year, it added.

In the Finance Act (No. 2) of 2024, the benefit of indexation while calculating long-term capital gains on debt mutual funds that were purchased before April 1, 2023, has been withdrawn, it added.

“Due to the withdrawal of the indexation benefit and the change in the tax rate from 20 percent plus surcharge and fee (with indexation) to 12.5 percent plus surcharge and fee (without indexation), accounting provision “The deferred tax liability thus created should be restated,” the carmaker said.

Accordingly, it said, “The accounting provision for deferred tax liability created by the company as on June 30, 2024 would need to be increased by approximately Rs 8,500 crore, which would have a one-time impact on the company’s profit after tax for the second quarter of FY 2024-25.”

Rahul Bharti, Head – Investor Relations, Maruti Suzuki India, said in a statement that at this stage, it is merely an accounting provision due to the change in tax rules by removing the benefit of indexation on market gains. “The actual tax outflow will happen subsequently on future dates as we redeem those mutual funds,” he added. Bharti said this is not related to operations and will not impact the company’s operating profits.

“This will impact tax on other income at the respective future dates when we redeem those funds,” he added.