Interim Dividend Rules in India

Public Limited Company

Interim Dividend Rules in India

Registrationwala

Interim dividend means dividend which is paid before Annual General Meeting and finalisation of financial statements. Normally cash rich or profitable companies declare interim dividend

Section 2(35) of the companies Act, 2013 defines dividend as dividend includes interim dividend.

Procedures to declare Interim Dividend/Dividend:

Unlisted public limited companies can declare interim dividend easily by holding board meeting giving 7 days prior notice and make payment. It is worthwhile to note that board resolution can be passed even by circulation, which is not required to be filed with ROC.

Listed companies have to follow Listing Obligation and Disclosure requirement (LODR) Regulation, 2015 as well along with provision of Companies Act.

There are some time sensitive deadlines and tedious process as prescribed under LODR which are as follows:

  1. Prior intimation of at least 2 working days for declaring Dividend.
  2. Give 7 days prior notice to stock exchange regarding record date.
  3. Disclose outcome of board meeting within 30 minutes to stock exchange.

Sources to pay interim Dividend:

  1. Out of the surplus profit in Profit and Loss account.
  2. Profits of the financial year in which such interim dividend is proposed to be declared.

Tax Implication on Interim Dividend/Dividend:

n the past, a dividend distribution tax (DDT) tax was levied on the companies that paid dividends to their shareholders. However, the government abolished this tax in 2020, and till date the dividends are taxed in the hands of the shareholders.

 

Tax Rates on dividend for the assessee varies according to the category of assessee and the instrument for dividen-+d distribution.

 

Here is a table to help you understand the tax rates on dividend easily:

 

Category of Assessee

Dividend nature

Rate of Tax

Resident

Dividend received from a domestic company

As per the normal tax rate which is applicable for the assessee

NRI

Dividend on GDR of Indian Company./PSU (purchased in foreign currency)

10%

NRI

Dividend on shares of Indian Company (purchased in foreign currency)

20%

NRI

Any other Dividend income

20%

Assessee with Foreign Portfolio Investment (FPI) 

Dividend on securities other than those mentioned in Section 115AB of Income Tax Act

20%

Investment Division of offshore banking unit

Dividend on securities other than Section 115AB of Income Tax Act

10%

 

Some Point to be noted:

  1. The amount of interim dividend shall be deposited in a separate bank account within 5 days from the declaration of Interim dividend.
  2. Dividend has to be paid within 30 days from the date of declaration.
  3. If the dividend has not been claimed within 30 days from the date of its declaration then company is required to transfer total amount of dividend which remains unpaid to a special account to be called as unpaid dividend Account.

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