Interim Dividend Rules in India

  • May 11, 2016
  • Registrationwala
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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:

Dividend received from domestic company by shareholders is tax free under the Income Tax Act, 1961.

Now, Budget 2016 proposed to insert a new section �to levy tax @ 10% on dividends received from domestic company by certain assesses whose income exceed Rs. 10 Lakh, by way of dividend.

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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