Maruti Suzuki shares unfazed after company says Q2 net profit to be hit by Budget’s LTCG tax rule

Maruti Suzuki hinted that its q2 profit will be hit due to due to Budget 2024 taxation changes

Maruti Suzuki share price traded flat at Rs 12,226.85 per share on the NSE in the early trade after the automobile major said that it expects its Q2 FY25 net profit to be hit to the tune of Rs 850 crore to account for removal of indexation benefits on its debt investments.

The shares had settled flat at Rs 12,207.55 per share on the NSE on Friday, 16 August, after soaring 1.13 percent to Rs 12,343.95 apiece intraday.

On Monday, the stock witnessed downtrend after the company said it would need to increase provision for deferred tax liability by around Rs 850 crore due to the withdrawal of indexation benefit while calculating long-term capital gains on debt mutual funds, as proposed by Finance Minister Nirmala Sitharaman in Budget 2024.

In the Finance (No.2) Act 2024, the indexation benefit has been withdrawn while calculating long term capital gains on debt mutual funds which were purchased prior to April 1, 2023, it added.

The country's largest carmaker in a regulatory filing said that it was making accounting provisions for deferred tax liability on fair value gains on these investments.

"Due to withdrawal of indexation benefit and change in rate of tax from 20 percent plus surcharge and cess (with indexation) to 12.5 percent 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 on June 30, 2024 would need to be increased approximately by Rs 8,500 million thereby having a one-time impact on the profit after tax of the company for Q2 of FY 2024-25." Maruti Suzuki India Chief Investors Relations Officer Rahul Bharti in a statement said this is only an accounting provision at this stage due to the change of tax rules by removing the Indexation benefit on the mark to market gains.

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

The homegrown automobile major reported a 47 percent jump in net profit to Rs 3,650 crore for the June quarter. The Gurugram-based automobile major had logged a net profit of Rs 2,485 crore in April-June FY24.

The auto major's net sales increased to Rs 33,875 crore in the June quarter as compared with Rs 30,845 crore in the year-ago period.

The country's largest carmaker sold 5,21,868 vehicles during the first quarter, up 5 percent as compared to the same period previous fiscal. It sold 4,51,308 units in the domestic market in the first quarter, an increase of 4 percent over the same period of FY24.

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