Firms in dividend tax rush

BUDGET IMPACT

31 companies to consider interim payouts ahead of March 31 deadline.

India Inc is in a rush to pay interim dividends to beat the higher dividend distribution tax (DDT), which kicks in on April 1. Two days after the Budget which raised the DDT to 15 per cent, as many as 31 companies informed the stock exchanges that their board of directors will meet in the next few days to declare dividends.

Some of the companies that announced their intention to pay interim dividends are Reliance Industries, Sun Pharmaceuticals, IPCL, National Aluminium, TV 18, Colgate, IMPL, Micro Inks and MMTC.

Some of the companies whose financial year ended on December 31, 2006, have also called board meetings to pay interim dividends.
 

BEATING THE DEADLINE Top ten dividend payouts in 2005-06
	Board   meeting	Amount*	Div tax*	Div %
Reliance Inds.	Mar-10	1393.51	195.44	100
GAIL (India)	Mar-06	845.65	118.60	100
Natl. Aluminium	Mar-10	322.16	45.18	50
Nestle	Mar-20	241.04	33.80	250
I P C L	Mar-10	136.52	19.15	55
Sun Pharma.	Mar-10	102.30	14.36	110
Colgate Palmoliv	Mar-09	102.00	14.30	75
Wockhardt	Mar-08	54.72	7.67	100
Sundaram Finance	Mar-16	37.49	5.26	135
Navneet Publicat	Mar-08	16.20	2.27	85
*Figures in Rupees crore

The Wockhardt board, for example, is meeting on March 8 to revoke its earlier proposal for 100 per cent dividend and recommend an interim dividend for the year ended December 2006. Some other companies in this category are Esab India, Grindwell Norton, ITD Cementation, Nestle India, and Atlas Copco.

Many others are expected to join the queue as companies have time till March 10 to announce their plans. Under Sebi rules, a 21-day notice is necessary to make any dividend announcement.

Noted lawyer Y P Trivedi says he had advised his clients to announce interim dividends in the next one week if they wanted to take advantage of the lower tax rates.

In the 2002 Budget, Finance Minister Yashwant Sinha had made dividends taxable in the hands of shareholders. This led to a rush by companies to pay interim dividends before the March 31 deadline.

Many companies had not followed the mandatory 21-day notice period, forcing the finance ministry to ask the market regulator to take immediate action. Some companies had to call off their plans after Sebi insisted on the 21-day notice.

The Budget has proposed to increase the DDT from 12.50 per cent to 15 per cent (effective rate up from 14.06 per cent to 17 per cent when education cess and surcharge is factored in). This is estimated to increase the tax burden of the corporate sector by over Rs 1,750 crore.

The 31 companies that have called board meetings are likely to save over Rs 100 crore by paying dividends before March 31, going by last year's dividends of Rs 3,500 crore, for which dividend distribution tax of Rs 467.75 crore was paid.

Reliance Industries, which paid a dividend of Rs 1,394 crore in 2005-06, will save Rs 41.25 crore if it pays the same amount of dividend for 2006-07. The saving for Gas Authority of India will be of Rs 25.03 crore, National Aluminium, Rs 9.54 crore, IPCL, Rs 4.04 crore, Nestle, Rs 7.13 crore, and Colgate and Sun Pharmaceuticals, Rs 3 crore each.