Raining dividends on Street: Firms loosen purse strings to help promoters

Companies advance payouts to help promoters save tax

In a record of sorts, about a dozen companies have announced dividends each day of this month. The trigger for the latest payouts is the transfer of dividend tax liability from companies to promoters. Market players say companies are advancing their dividend payouts to lower the tax burden of promoters.

So far this month, nearly 200 companies have declared interim dividends, which is more than double compared with the same period of last year. Also these payouts have been higher than last year.

Market experts say that based on profit projections for the next few quarters, companies are paying higher interim dividends. More companies are likely to dole out dividends before the end of March, they add. Typically, the final dividend payout gets spilled over to the next financial year.

Some companies that have announced hefty interim dividends are Bajaj Auto (dividend of Rs 120 per share), Shree Cement (Rs 110 per share), and Hero Motocorp (Rs 65 per share). The quantum of the latest payout by these companies and many others has been greater than the recent dividends paid by them.

“Most of the companies that have given fat dividends have high promoter stakes. Obviously, this is being done to benefit the promoters, who will have to pay tax in excess of 40 per cent from April onwards. I expect this trend will catch up even more over the next two weeks in the case of established cash-rich companies,” said S P Tulsian, founder of investment advisory firm sptulsian.com.

Finance Minister Nirmala Sitharaman on February 1, the Union Budget day, announced abolishing the dividend distribution tax (DDT) of 20.56 per cent paid by companies. 

However, she said those receiving dividends would have to pay tax on it based on their personal income tax slab, which could be as high as 43 per cent. Currently, the dividend recipient has to pay a tax of 10 per cent if the total dividends exceeds Rs 10 lakh in a fiscal year. This is in addition to the DDT paid by firms. 

“The new tax regime puts domestic shareholders in a disadvantageous situation because they would be required to pay a higher amount of tax. As a result, they would want to get as much dividend as possible this year,” said S R Patnaik, partner & head (taxation), Cyril Amarchand Mangaldas. Experts said paying interim dividend was relatively faster as it could directly be declared by the board and didn’t require shareholders’ approval like final dividends.