Maruti will have one-time impact on net profit in Q2; here is why

Maruti Suzuki India shares will be tracked closely by market participants on Monday, August 19, as the company said that it will take a one-time hit in Q2 profit due to changes in taxation structure announced by the government in the Budget 2024–25.

The automaker said on Saturday, August 17, that it would need to increase the provision for deferred tax liability by around ₹850 crore due to the withdrawal of indexation benefits while calculating long-term capital gains (LTCG) on debt mutual funds.

The 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 profit after tax will be felt in the second quarter of the ongoing fiscal, it added.

In the Finance (No. 2) Act 2024, the indexation benefit has been withdrawn while calculating long-term capital gains on debt mutual funds that were purchased prior to April 1, 2023, it added.

"Due to the withdrawal of the indexation benefit and the change in rate of tax from 20% plus surcharge and cess (with indexation) to 12.5% plus surcharge and cess (without indexation), accounting provision for deferred tax liability so created needs to be restated," the automaker said.

Consequently, it said, "The accounting provision for deferred tax liability created by the company as of June 30, 2024 would need to be increased approximately by ₹8,500 million, thereby having a one-time impact on the profit after tax of the company for Q2 of FY 2024–25."

"The actual tax outflow will happen subsequently at future dates as and when we redeem those mutual funds," Bharti added.

Bharti asserted that this is not related to operations and will not impact the company's operational profit.

"It will affect the tax on other income at respective future dates whenever we redeem those funds," Bharti said further.