‘Race against deadline’ for Companies eager to declare interim dividend

The companies suddenly seem to be in a rush to declare interim dividend. The driving reason behind this rush lies in the amendments inserted in the Finance Bill, 2016.

Finance Bill, 2016, seems to have caught hold of the income which was getting taxed at a lower rate. As per the provisions of the Income Tax Act, 1961("IT Act"), dividend distributed by companies, are exempt in the hands of the shareholders by way of exemption under section 10(34) IT Act. Thus, companies are liable to pay distribution tax under section 115-O of the IT Act, at the rate of 17.304% (i.e. basic rate of 15% plus surcharge of 12% and cess of 3%).

Through the FinanceBill 2016, a new section has been introduced (i.e. 115BBDA) to provide that, where the dividend is to be paid to resident individuals, HUFs and Firms then, there would be an additional tax at the rate of 10% in the hands of the investors. This step by the Hon'bl Finance Minister aims at taxing such portion of income which was getting escaped from the ambit of tax, in the hands of those investors, who are subjected to higher tax rate (i.e. 30%).

The above amendment would be made effective from the Assessment Year 2017-18 (i.e. previous year 2016-17), hence the rush to declare the interim dividend.

But, amidst all the rush, companies also have the host of regulatory compliance to adhere to, during the process of declaring interim dividend. Be it in terms of the Companies Act, 2013, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or the Secretarial Standards; companies have to take due care of all the legal requirements. Hence, sensing the need of the hour, an attempt has been made to compile a comprehensive set of FAQs, with regard to interim dividend. The FAQs have been framed to act as "The one stop solution to the sudden rush for interim dividend".

Meaning of interim dividend

1. What is an interim dividend?

Dividends which are paid by the board of directors between two annual general meetings without declaring them at an annual general meeting are called interim dividend.

2. Is interim dividend also "dividend" as defined in Section 2 (35) of the Act, 2013 ('Act, 2013')?

The term "dividend"as defined in Section 2(35) of the Act, 2013 includes any interim dividend. Hence, the definition as provided under the Act, 2013 is an inclusive definition rather than an exhaustive one. Therefore, interim dividend is also a dividend as per the provisions of the Act, 2013.

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