Union Budget 2026: Impact on Maharashtra Scooters Ltd.'s Investment Strategy

Maharashtra Scooters Ltd. (MSL), a Core Investment Company (CIC) with substantial holdings in the Bajaj Group, faces a new fiscal landscape shaped by the Union Budget 2026. While historically rooted in auto ancillaries, MSL has fully transitioned to an investment entity, making the budget's provisions on taxation, financial markets, and ease of doing business particularly pertinent to its operational and investment strategy. The budget, presented on February 1, 2026, emphasizes sustained economic growth, fiscal discipline, and structural reforms, creating a broader environment that could influence MSL's portfolio performance.

Understanding Maharashtra Scooters' Business Model

Maharashtra Scooters, incorporated in 1975, has undergone a significant transformation. The company ceased its manufacturing operations, including tool room activities, by February 2025. It now functions exclusively as an unregistered Core Investment Company, primarily investing at least 90% of its assets in Bajaj Group companies. The remaining accumulated surpluses are deployed in debt and other financial instruments. This model means MSL's financial performance is intrinsically linked to the health and performance of its investee companies, as well as the broader capital markets and prevailing tax regulations.

For the nine months ended December 31, 2025, MSL reported a net profit of ₹306.55 crore, an 88.37% increase year-on-year, on total revenue of ₹306.73 crore. A significant portion of this revenue, ₹286.02 crore, came from dividend income, highlighting the importance of tax treatment for such income. The company also benefited from a net tax credit of ₹3.02 crore, including a write-back of ₹7.69 crore in tax provisions due to deductions under Section 80M of the Income Tax Act.

Direct Tax Reforms and Their Implications

Union Budget 2026 introduces several direct tax proposals that will directly influence MSL's financial planning and investment returns. The most significant of these is the overhaul of the Minimum Alternate Tax (MAT) regime and changes to the taxation of share buybacks.

Minimum Alternate Tax (MAT) Overhaul

The budget proposes to make MAT a final tax from April 1, 2026, with its rate reduced from 15% to 14%. Critically, the set-off of brought-forward MAT credit will now only be allowed to companies opting for the new tax regime, and to an extent of one-fourth of the tax liability in that regime. For MSL, which has historically utilized tax credits, including those from Section 80M deductions, this change necessitates a re-evaluation of its tax strategy. As an investment company with substantial dividend income, its tax efficiency will be closely tied to how these new MAT provisions interact with its specific income streams and available credits. The shift to MAT as a final tax could impact its effective tax rate and cash flows going forward.

Taxation of Share Buybacks

The budget proposes to tax buybacks for all types of shareholders as capital gains. Furthermore, promoters will incur an additional buyback tax, set at an effective rate of 22% for corporate promoters and 30% for non-corporate promoters. This measure aims to disincentivize the misuse of tax arbitrage through buyback routes. For MSL, as a significant investor in Bajaj Group companies, this change is highly relevant. Should any of its investee companies undertake buybacks, the tax implications for MSL as a shareholder will shift, potentially influencing the attractiveness of buybacks as a capital allocation strategy for these companies and, consequently, MSL's investment returns.

Streamlining Tax Compliance

To enhance ease of living for taxpayers, the budget proposes to enable depositories to accept Form 15G or Form 15H directly from investors and provide it to relevant companies. For MSL, which receives substantial dividend income, this measure could streamline the process of claiming lower or nil tax deduction at source (TDS) on its dividend receipts, reducing administrative burden and improving cash flow management.

Financial Market Development and Investment Portfolio

The Union Budget 2026 also outlines measures aimed at strengthening the financial sector and capital markets, which indirectly benefit investment companies like MSL.

Corporate Bond Market Reforms

The Finance Minister proposed introducing a market-making framework with access to funds and derivatives on corporate bond indices, along with total return swaps on corporate bonds. Given that MSL invests its accumulated surpluses in