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Dividend declared by Indian companies | Company Vakil

The dividend declared by Indian company is a payment made by a corporation or a company to its shareholders, generally as a distribution of profits. When a corporation gains profit or surplus, the corporation is capable of re-investment of the profit in the business ,called retained earnings and pay a proportion of the profit as a dividend to its shareholders. allotment to shareholders may be in cash but it is usually a deposit into a bank account or, if the company has a dividend reinvestment plan, the sum can be paid by the issue of shares or share repurchase.

The dividend declared by Indian company is allocated as a fixed quantity per share, with shareholders accepting a dividend in proportion to their own shareholding. For a joint-stock company, payment of dividends is not an expense; on the other hand, it is the sharing out of after-tax profits amongst shareholders. Retained earnings i.e. profits that have not been distributed as dividends, are publicized in the shareholders’ equity section on the company’s balance sheet – the same as companies issued share capital. Public companies generally pay dividends on a predetermined schedule, but may declare a dividend at any given time, sometimes called a special dividend to differentiate it from the fixed schedule dividends. Cooperatives, on the other hand, distribute dividends according to the members’ activity, so their dividends are habitually considered to be a pre-tax expense.

Forms of payment

Cash dividends declared by Indian companies are the most ordinary form of payment and are paid out in money, frequently via electronic funds transfer or a printed paper check. Such dividends are a type of investment income and are generally taxable to the beneficiary in the year in which they are paid. This is the most ordinary means of sharing corporate profits with their shareholders of the company. For each share owned by the shareholder, a declared sum of money is dispersed. Therefore, if a person owns 100 shares and the cash dividend is Rs 50 per share owned, the holder of these shares will be paid Rs 5000 in total. Dividend declared by Indian company paid are not considered as an expense, but rather a reduction of retained earnings. Dividend paid does not appear on an income statement but does show up on the balance sheet.

Stock or scrip dividends declared by Indian companies are those paid out in the manner of additional stock shares of the issuing company, or another company (such as its subsidiary corporation). They are generally issued in proportion to shares owned by the shareholder .for example, for every 100 shares of stock owned by the share holder; a 5% stock dividend will yield 5 extra shares.

Nothing tangible will be gained in the case where the stock is split because the total number of shares increases, which lowers the price of each share, without altering the market capitalization, or the total price, of the shares held.

Stock dividend distributions have no affect on the market capitalization of the company. Stock dividends declared by the Indian companies are not includable in the gross total income of the shareholder for US income tax purpose. Because the shares are issued for earnings equal to the pre-existing market value of the shares; there is no negative intensity in the amount recoverable.

Property dividends/ dividends in specie (Latin for “in kind”) are those dividends which are paid out in the form of assets from the issuing company or another company, such as a subsidiary company. They are comparatively rare and most regularly are securities of other companies owned by the issuer, though they can take other forms, like products and services.

Interim dividends are dividend outflow made before a company’s Annual General Meeting (AGM) & final financial statements. This dividend declared by Indian company usually accompanies the company’s interim financial statements.

Other dividends declared by Indian companies can be used in structured finance. Financial assets with a known market price can be distributed as dividends; warrants are sometimes distributed in this form. For huge companies with subsidiaries, dividends can take the shape of shares in a subsidiary company. A common method for “spinning off” a company from its parent company is to distribute shares in the new company to the old company’s existing shareholders. The new shares can then be traded in an independent manner.

Dividend taxation

In India, companies declaring/ distributing dividend, are required to remit a Corporate Dividend Tax along with the tax levied on their income. The dividend gained by the shareholders is therefore exempt in their own hands. This is because the company pays tax on their behalf. but, dividend income above Rs. 1,000,000 shall attract 10 % dividend tax in the hands of the shareholder, from April 2016.

For more information, visit Company Vakil website.

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