Interim Dividend : Understanding Meaning, Calculation and Its Procedure

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Interim Dividend : Understanding Meaning, Calculation and Its Procedure

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Preface: This post was originally published in 2016 and has been updated on October 27, 2025, to provide you with the most current and accurate information.

Interim dividend is a dividend payment made to the shareholders of a company. It is paid prior to the annual general meeting and publication of complete financial statements by the company. 

In this blog post, we shall explain what an interim dividend is, its calculation formula, dividend declaration process, difference between interim dividends and final dividends and more. 

Interim Dividend Meaning: Explained

Section 2(35) of the Companies Act 2013 describes "dividend" to be including any interim dividend. Interim dividend means a part of a company's profits that is paid to shareholders before the annual general meeting is held and the final financial statements are released. 

The payment of interim dividends is typically made monthly, quarterly, biannually or annually. These dividends are distributed from retained earnings and are declared by the board of directors. 

The absolute power to declare these dividends lies with the board. These dividends are based on the company's quarterly or half-yearly financial performance as opposed to final dividends that require shareholder approval at the annual general meeting. 

How to Calculate Interim Dividend?

To calculate the interim-dividend, you must apply the right formula. The interim dividend formula is as follows:

“Interim Dividend = (Company Earnings × Dividend Payout Ratio) ÷ Number of Shares Outstanding”

Let’s suppose a company known as “YXZ Ltd.” allocates 50% of its profits to its shareholders. So, if this company earns Rs. 15 lakhs and has 30 lakh shares outstanding, each share will receive a dividend of Rs. (15,00,000 × 50%) ÷ 30,00,000 shares = Rs. 0.25 per share.

Interim Dividend Procedure

For declaration of interim dividend, the following steps are essential:

Step 1: First and foremost, the articles of association (AoA) of the company must authorize the payment of dividend. If the AoA doesn’t grant this power to the company, they must be amended first.

Step 2: Then, the company must issue a notice for convening a board meeting to consider the matter in accordance with Section 173 of the Companies Act 2013. This notice must be sent to every company director at least 7 days before the Board meeting is scheduled to be held.

Step 3: During the meeting, the board must pass a resolution for declaration of the interim div. Before passing the resolution, the board must assess the company's financial position to ensure that the dividend is paid from available profits or the current year's earnings. If the company has experienced a loss in the current financial year up to the preceding quarter, the interim div. rate is limited to the average rate of dividends paid over the past three years. In addition to this, at the meeting, a record date must be set to identify who the eligible shareholders are. 

(Note: It is important to note that the publicly listed companies are subject to additional requirements as per SEBI regulations.)

Step 4: Within 5 days of the dividend announcement, a company must open a separate bank account in its name with a scheduled bank and deposit the total dividend payable in the account.

Step 5: Within 30 days from the dividend declaration date, the dividend must be paid to shareholders via cheque, warrant or electronic means. 

Step 6: In case any dividend is unpaid or unclaimed after 30 days, it must be transferred to an "Unpaid Dividend Account". This transfer needs to be made within a period of 7 days. 

Step 7: Within 90 days of transfer, a statement regarding the unpaid dividend must be prepared and published on the web-site of the company, if any, and also on any other web-site approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed, according to Section 124 of the Act.

Step 8: In a scenario where the dividend remains unclaimed for seven years in the Unpaid Dividend Account, the amount, along with the corresponding shares, must be transferred to the Investor Education and Protection Fund (IEPF). 

Step 9: The acknowledgment of the payment of the interim dividends takes place at the subsequent Annual General Meeting.

Interim Dividend vs Final Dividend

The difference between interim dividend and final dividend can be understood with the help of the table below:

 

Parameters 

Interim Dividend

Final Dividend

Payment Period

A company pays interim div. prior to the end of the financial year, before the annual meeting is held and the final financial statements are released.

The final dividends are declared after the financial year-end, once the financial statements are completed, audited and approved by shareholders at the annual general meeting.

Approving Authority

Requires approval of the Board of Directors.

Requires approval of the shareholders at the AGM.

Purpose of Dividend

Interim dividend’s purpose is to distribute profits earned before the financial year-end.

The purpose of payment of final dividends is to distribute the remaining profits upon accounting for all expenses and reserves.

Dividend Amount

Usually smaller since it represents only a portion of the annual profits.

The final dividend’s amount is usually larger as it is the remaining portion of the annual profits after interim dividends have been paid.

Impact on Cash Flow and Share Price

Depending on the timing and amount of distribution during financial year, the interim-dividend can affect the company’s cash flow positively or negatively.


When it comes to share price, an interim-dividend generally has a limited effect.

A final dividend can have an influence on cash flow as it involves a larger payout after year-end based on audited profits.

A final dividend has a greater impact on share price when compared to interim-dividends. This is because final dividends represent the company’s final distribution of profits for the year. 

Revocation

Can be revoked upon consent of all the shareholders

Cannot be revoked in any scenario

 

Conclusion

Interim dividend is a specific type of dividend paid to shareholders before the company's financial year has concluded. It is declared by the board of directors of the company. In certain circumstances, this dividend may be revoked or cancelled by the board before it is actually paid to the shareholders. 

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Frequently Asked Questions (FAQs)

Q1. Are interim dividends paid on preference shares?

A. Yes, they are paid on preference shares as long as the articles of association authorize the board of directors to do so.

Q2. Can interim dividends be revoked?

A. Yes, the board of directors may revoke or cancel the interim dividends before they are paid to the shareholders.

Q3. How many times interim dividend can be declared?

A. Declaration of interim dividends can be made multiple times in a financial year.

Q4. Do you need shareholder approval for interim dividends?

A. No, interim dividends do not require shareholders approval (unlike final dividends).

Q5. Who declares interim dividends in the company?

A. Interim dividends are declared by the board of directors.

Q6. What is interim dividends formula?

A. The interim dividends formula is as follows: (Company Earnings × Dividend Payout Ratio) ÷ Number of Shares Outstanding.




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