Companies rush to Interim Dividend to skip Tax

India Inc is in mood to make shareholders happy with huge dividend bonanza.

Energy giant Reliance Industries Ltd (RIL) said on Thursday that it will pay a total of Rs.3,140 crore in interim dividend to shareholders, including the promoters.

The payout, at Rs.10.5 per share, was announced in a statement to the stock exchanges after a meeting of the RIL board. RIL had 323.92 crore shares outstanding as of 31 December.

Thursday’s decision is only the second time that RIL has opted to pay an interim dividend in the last 19 years, Bloomberg data show. The company previously paid Rs.11 per share as interim dividend in March 2007. RIL’s decision then followed a budget announcement raising DDT to 15% from 12.5%, analysts said.

Apart from RIL, several others are lining up their dividend payouts.

India’s largest two-wheeler maker Hero MotoCorp declared an interim dividend of Rs 40 per equity share for the financial year ending March 31.

FMCG firm Marico has declared third interim dividend of Re 1 per equity share (100% on its Re 1 share) for the current financial year. Similarly, Bajaj Auto declared an interim dividend of Rs 50 per share for the year ending 31 March, 2016. Last week, Coal India declared an interim dividend of Rs 27.40 per share of face value Rs 10.

In the Budget 2016-17, finance minister Arun Jaitley announced that resident investors (individuals as well as promoters) whose dividend income exceeds Rs 10 lakh during the financial year will pay 10% levy. This levy is in addition to the 20.47% tax that Indian companies pay as dividend distribution tax (DDT) on dividends declared.

According to Analysts, this whole episode of Interim Dividend Payout is to skip this tax.

Interestingly, Indian companies are queuing up to pay dividends to shareholders before the fiscal-end. Close to hundred companies have already announced dividends to escape the tax net while many others have informed stock exchanges about their plans to call Board meetings to consider payment of interim dividend. Companies that are considering paying interim dividends to shareholders in the coming days include Bharat Forge Ltd and Eicher Motors.