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Section 115-O(1) Of the income tax act provides that every domestic  company required to pay dividend distribution tax in addition to income tax on any amount declared, distributed or paid by way of dividends (whether interim or otherwise), whether out of current profits or accumulated profits @ 15% plus surcharge@ 5 % plus education cess 3 %  Or (16.996%)

Important points:-

1. CDT shall be paid within 14 days from the date of

i. Distribution; or

ii. Declaration; or

iii. Payment of dividend whichever is earliest

2. CDT is payable even if no income tax is payable

3. CDT is not an allowable deduction under income tax act

4. Foreign company is not liable to pay CDT

5. As per finance act, 2011 the companies engaged in developing, operating and maintaining Special Economic Zones are liable to pay CDT if dividend is declared on or after 1STJune, 2011.

PROVISION OF DIVIDEND AS PER COMPANIES ACT, 2013

Every company shall transfer a portion of its net profit of the year to general reserve before deciding to pay dividend. (First proviso to section 123(1))

Rule 3 of companies (Declaration and payment of dividend) Rules, 2014

Conditions:

i. Rate of dividend shall not exceed the preceding 3 years average dividend rates.

ii. Maximum amount to be drawn from reserve=1/10(paid-up share capital + free reserves) as per the latest audited financial statement;

iii. Amount shall be first utilised to set off the losses incurred in the financial year;

iv. Reserve balance after such withdrawal shall not fall below ( 15% of its paid up share capital)

No Company shall declare dividend

i. Unless last year losses and depreciation.

ii. Which could not be set off in previous year

iii. Are set off against profit of the company of the current year for which dividend is paid.

iv. Amount to be set-off the loss or depreciation whichever is less.

INTERIM DIVIDEND (section 123(3)

A dividend is said to be an interim dividend, if it is declared by the board during any financial year out of surplus in the P & L account and out of profits of the financial year in which such interim dividend is sought to be declared.

And In case company has incurred loss;

i. Interim dividend shall not be declared at a rate

ii. Higher than the average dividends

iii. Declared by the company

iv. During the immediately preceding three financial years.

Articles must provide power to pay dividend (interim as well as final)

SECTION 124(1) & 127                                                                                       

PAYMENT OF DIVIDEND

Interim & final within 30 days of declaration of dividend by  the company

MODE OF PAYMENT

ONLY CASH/ WARRANT/ CHEQUE

Dividend warrants shall be posted /sent/credited within 30days from the date of approval

Posting of dividend warrants is deemed to have been paid by the company

PAYMENT TO BE MADE

To registered holders or to his bankers

DEFAULT

Where dividend is not paid or warrant have not been posted within 30 days from the date of declaration

IN CASE OF DEFAULT:-

ON DIRECTOR

Imprisonment up to 2 years

Fine- rs.1000 per day during which the default continues

ON COMPANY

Liable to pay simple interest @ 18% per annum for the period of default

WHAT SHALL NOT BE CONSTITUTED AS DEFAULT

A. where dividend could not be paid due to operation of law;

B. Where the shareholder has given the direction s to the company and those directions could not be complied with.

C. where dispute exists regarding the right to receive dividend;

D. where the dividend has been lawfully adjusted by the company against any sum due from the shareholder;

E. where the delay is not due to default on the part of a company

FINANCIAL RESOURCES FOR PAYMENT OF DIVIDEND (Section 123(1)

a) Profit after depreciation under section 123(2)

b) Profit of any previous financial year remaining undistributed.

c) Both (i) and (ii), above;

d) Moneys provided by the central government or state government for the payment of dividend in pursuance of guarantee given by government;

e) Out of reserves as stated under section 123(1)

Members as on the date of the annual general meeting will receive the dividend as the dividend is approved by the members on the day when annual general meeting held.

OPENING OF A SEPARATE BANK ACCOUNT Section 123(4)

Amount of dividend shall be deposited in a separate bank account within 5 days from the date of such declaration

A company cannot use the amount even up to the period of thirty days  and it is obligatory on the part of the company to keep the entire amount , which shall be exclusively utilised for the payment of dividend.( section 124)

TRANSFER OF UNPAID DIVIDEND AMOUNT TO IEPF section 124(5)

Any money transferred to the unpaid dividend account of a company, which remain unpaid or unclaimed for a period of 7 years from the date of transfer shall be transferred by the company to IEPF.


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Category Corporate Law, Other Articles by - MONIKA MANNAN 



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