Corporates are not declaring interim dividends this year. Some of them are even pushing board meetings, which take into account the audited financial results for fiscal 2001, to June. Reason: they want to take advantage of the 50 per cent reduction in payment of dividend tax announced in the Budget.
The scenario is just the reverse of what was seen last year when the dividend tax was doubled to 20 per cent, triggering a spate of interim declarations by Indian corporates. This year, most of the corporates are holding the annual general meetings after May 31, to avoid paying higher dividend tax.
Bank of India has postponed its board meeting to June to take advantage of the cut in dividend tax. Telecom major Himachal Futuristic Communications Ltd, which was earlier slated to announce its results on April 30, has postponed it to June. ONGC has also postponed its meeting to June 7.
Housing Development Finance Corporation and ICICI, which have already announced their results, will also not hold annual general meetings till June.
Corporates will pay a lower dividend tax of 10.2 per cent after June 1, taking into consideration the surcharge as against a dividend tax of 22.6 per cent now.
According to the changes made in Section 115-O of Income Tax Act, dividends which are declared, distributed or paid (whichever is earlier) on or after June 1, 2001, will attract a 10 per cent tax. Taking into account a 2 per cent surcharge, companies will have to effectively shell out only 10.2 per cent tax on the dividend outgo.
There is a time lag of more than a month when a company declares its results and dividend, and the AGM.
Last year, most of the corporates had announced interim dividends to take advantage of the time gap. This year with the reduction of the dividend tax, there is no necessity for these corporates to rush in to pay dividend.
Declaring an interim dividend is a fairly easy process as the same can be declared by the board, pointed out a company secretary. However, declaring a final dividend is a longer process as the AGM has to be held and the audited balance sheet has to be approved. Companies also have to give a 21-day notice to hold the AGM.
