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Great Indian dividend festival’s on before new tax rules kick in

The boards of 32 more companies are meeting in the next three days to decide on the dividend.

, ET Bureau|
Last Updated: Feb 27, 2020, 09.10 AM IST
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The Bajaj Auto board on February 21 declared an interim dividend of 1,200 per cent or ?120 per share. The company in 2019 and 2018 had declared a dividend in the month of May.
Companies are rushing to pay dividends to shareholders before the new budget proposal, which makes dividend income taxable up to 43 per cent in the hands of the recipient, takes effect from April.

So far, 204 companies have announced dividends since February 1, compared with 90 during the similar period in 2019 and 98 in 2018. The boards of 32 more companies are meeting in the next three days to decide on the dividend.

The Bajaj Auto board on February 21 declared an interim dividend of 1,200 per cent or Rs 120 per share. The company in 2019 and 2018 had declared a dividend in the month of May.

Shree Cement on February 14 announced an interim dividend of 1,100 per cent compared to 250 per cent interim dividend announced in January 2019 or 200 per cent in January 2018. Symphony has declared a special dividend of 900 per cent on February 7. Divis Laboratories has approved a dividend of 800 per cent on February 12. The company in the past three years announced dividend in the month of May.

At present, shareholders in the country need not pay any tax on income from dividends from domestic companies for up to Rs 10 lakh while they are taxed 10 per cent for dividend income beyond Rs 10 lakh. After the abolition of dividend distribution tax (DDT), the recipient of dividend will have to pay according to their respective tax slabs, which are as high as 43 per cent.

Most promoter owners hold equity individually or in trusts, and are in the upper tax bracket. So, they will now have to pay 43 per cent tax on dividend from April 1. “Shareholders of companies with high promoter holding can expect a flurry of dividend announcements before March 31,” said Vijay Bhushan, president, Association of National Exchanges of Members of India (ANMI).

Balkrishna Industries has announced an interim dividend of 800 per cent on February 14, compared to 100 per cent dividend declared in February 2019 and 75 per cent in February 2018.

Dividend snip 1

A similar rush to pay interim dividend was witnessed in 2002, when the then finance minister Yashwant Sinha had proposed to make dividends taxable in the hands of the shareholders. Even in March 2007 after the presentation of the 2007-08 Budget when then finance minister P Chidambaram proposed an increase in dividend distribution tax (DDT) to 15 per cent from 12.5 per cent, a record 300 listed companies announced their plans to pay interim dividends before the next financial year.

Budget 2020 has proposed to abolish DDT on dividends paid by corporates and transfer the tax burden completely in the hands of the recipient.
Click here for all the information and analysis you need for tax-saving this financial year
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