FINAL/INTERIM DIVIDEND 

A) Interim financial statements for the period for which interim dividend is to be declared has to be prepared and the profit as shown in the financial statements is to be reduced by the following amounts

Ø      Depreciation for the full year

Ø      Tax including deferred tax and other anticipated losses for the year

Ø      Dividend on preference shares, if any

B) While declaring dividend the Board should also consider specified percentage of profit which is required to be transferred to reserves as per the Companies (Transfer of Profits to Reserves) Rules, 1975 while preparing final accounts for the year.

C) In case Interim Dividend is declared on only one class of Equity shares, the directors should ensure that the profit as calculated under point A) is adequate to meet the dividend that would have to be paid on the other classes of equity shares.

D) While final dividend may be paid out of free reserves, no interim dividend should be paid out of reserves in the event of a loss or inadequacy of profits as the companies (Declaration of Dividend out of Reserves) Rules, 1975 do not apply to Interim Dividend.

A) Final Dividend can be paid out of the profits of the financial year or out of the reserves or out of both.

B) In case dividend is paid out of profits for the financial year, then specified percentage of profit is to be transferred to reserves before declaring dividend as per the Companies (Transfer of Profits to Reserves) Rules, 1975. The minimum Percentage of current profits to be transferred to Reserves is as follows

However, the company can transfer higher percentage of profits subject to satisfaction of certain conditions.

C) In case dividend is to be paid out of accumulated profits, then it can be paid as per the conditions stipulated under the companies (Declaration of Dividend out of Reserves) Rules, 1975 The conditions stipulated under these rules are

Ø      The rate of dividend shall not exceed the average of the rates at which dividend was declared by it in the five years immediately preceding that year or ten percent of its paid up capital, whichever is less;

Ø      The total amount to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one – tenth of the sum of its paid up capital and free reserves and the amount so drawn shall first be utilized to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared;

Ø      The balance of reserves after such drawl shall not fall below fifteen per cent of its paid up share capital.

In case of Interim Dividend, it shall be declared in the Board meeting and not at a meeting of the committee of the board or by way of a resolution passed by circulation and no approval of members is required.

In case of Final Dividend, it shall be recommended by the board and approved by the shareholders by passing an ordinary resolution in the Annual General Meeting.

Where a company has issued equity shares with differential rights as to voting, no differentiation should be made in the declaration of Interim Dividend on Equity shares

The amount of Dividend / Interim Dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend.

Dividend Distribution tax @ 16.995% has to be paid within 14 days from the date of

  - Declaration of Dividend, or

  - Distribution of any dividend, or

  - Payment of any dividend,

whichever is earliest.

The amount of dividend shall be paid within 30 days of such declaration and in case of non resident shareholders by complying with provisions of FEMA.

No withholding tax is applicable as per provisions of sec 194 & 195 of Income Tax Act, 1961

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Last update : 25-04-2008 01:30