Finance minister Yashwant Sinha's decision to re-introduce payment of dividend tax in the hands of the investors has triggered off a mad rush by Corporate India to pay interim dividend and beat the March 31 deadline.
Within 24 hours after the budget announcement, at least 18 companies today sought special permission from the stock exchanges to pay interim dividend.
The board meetings will take place over the next week to consider payment of interim dividend.
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The list of corporates includes Dabur, Nestle India, TVS Motor, Reliance Industries, Reliance Petro, Cipla, GE Shipping, Dr Reddy's Lab, Raymond Ltd, Hero Honda, Kotak Mahindra, Marico Industries, Otis Elevator, Electro Steel, FDC, Varun Shipping and Ipca Lab.
"Some of the companies are taking this path to enhance shareholders' value as otherwise (if the dividend is paid in the next fiscal) the tax burden will fall on the shareholders," said a company secretary. However, there is another angle to this development. "The objective could be to save the promoters also from the tax burden. Even though dividend will be taxed at source at the rate of 10 per cent, the actual tax outgo will be much higher as the receipent will have to pay tax on his dividend income depending on his annual income," the source added.
Two years ago, a similar rush was witnessed for declaring interim dividend. At that time, however, companies rushed to beat the deadline as the burden of taxation of dividend payment was to shift to them from the receipients.
The dividend payout has to be credited to the receipients' accounts before March 31 if companies want to take advantage of the deadline. If they take the normal route, it cannot be done as they will be required give a seven-day notice to hold board meetings to consider dividend payout.
Moreover, there has to be a 30-day notice for book closure. To speed up the process, companies are seeking special permission from the stock exchanges so that the dividend can be paid before March 31, explained the finance director of a company that is planning to pay interim dividend.
"Some of the companies which have good cash flow can pay hefty interim dividend so that they do not need to pay the final dividend at all," said the finance director.