Dividend and interest

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M Ahamed Bassam (Querist)
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21 October 2014 Can anybody tell the detailed difference between interest and dividend according to the provisions of law...?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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21 October 2014 1. Both interest as well as dividends are liabilities of a company and it has to pay them to debtors and shareholders respectively.

2. Interest is fixed and specified in the terms and conditions of debt or bonds; dividends can vary depending upon profits of the company.

3.Interest is considered as an expense of a company and has the effect of reducing tax liability of a company when it is paid. Dividends are not an expense of a company and as such they do not reduce the net income of the company.

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