Flurry of dividend activities, courtesy Dividend Distribution Tax

Markets have witnessed a spurt in interim- dividends in the past week as FM in his recently concluded Union Budget speech announced that an investor has to pay Dividend distribution Tax (DDT) of 10 per cent for an annual dividend income of Rs10 lakh or more. This has led all the companies to declare interim dividends in order to avoid tax.

DDT is the tax which is levied on companies in line with the dividend paid to the company’s investors. For an annual dividend income of Rs 10 lakh or more, the investor will pay a DDT of 10 per cent. This means that, at an assumed dividend of 10 per cent, an investor will need to have a portfolio of Rs 1 crore, to begin paying this tax. This is in addition to the 28.84 per cent that the company already pays on this income.

Dividend income in excess of Rs 10 lakh per annum in the case of an individual, Hindu Undivided Family (HUF) or a firm existent in India, will be taxed at 10 per cent on a gross basis. This additional 10 per cent tax is over and above 15 per cent DDT paid by companies at present. The step is targeted mostly at promoters who receive hefty dividends and ultra HNIs (high net worth individuals).

The additional tax will come into effect from April 1. The boards of almost all the companies have met and will be meeting in the coming weeks to declare interim dividends, to be paid before the month ends.

Major index companies have announced interim dividends in the past week and half. Companies have shelled out hefty dividends in the current quarter. Major interim- dividend paying companies have been the likes of Coal India, Eicher Motors, HeroMoto Corp, Bajaj Auto, Bajaj Holdings, Bajaj Finance, Torrent Pharma, AIA Engineering, Borosil Glass Works, CESC, Divi’s Laboratories, Piramal Enterprises, Reliance Industries, Shree Cement, Symphony Limited, TTK Prestige, Vardhman Textile, Alkem Laboratories, Indiabulls Housing, TVS Srichakra, Kirloskar Industries and Nestle India. The dividends of these companies range from Rs 9 per share to Rs 100 per share.