In a Union Budget-infused multi-crore dividend bonanza, investors of over 120 companies in BSE 500 would receive huge payouts with a flood of hurried announcements of interim dividend to beat the tax incidence that would kick in from April 1, 2016.
The last to join the ranks has been Hindustan Zinc which announced a 1,200 per cent dividend amounting to a payout of Rs 10,141 crore (Rs 12,205 crore including dividend distribution tax) to its shareholders, which includes 64.92 per cent shares held by Vendanta Resources and 28.54 per cent held by the Government.
Hindustan Zinc on Wednesday said that the dividend of Rs 24 per share of Rs 2 is the ‘highest-ever dividend announced by a private company’ in its Golden Jubilee year.
Though exact aggregate payout figures of the 123 companies that have announced interim dividend between the Union Budget 2016 on February 29 till March 31 is not available, the total payout would run into several thousand crore of rupees. The 123 companies have fixed the record date for dividend payment on various dates before the end of the financial year on March 31, 2016.
If the universe of stocks is expanded to the entire BSE listed companies, the list of companies that decided to beat the April 1 deadline would be much larger.
Finance Minister Arun Jaitley had announced in the Budget 2016 that dividend earning above Rs 10 lakh annually would attract a 10 per cent additional dividend distribution tax from April 1. This, in effect, meant dividends declared before March 31, 2016 will not be taxable at the hands of the investor. This led to a rush in announcements by companies.
While the tax would be applicable mostly to promoters and large investors in companies, smaller shareholders would stand to gain as collateral benefit.
Hero Motocorp leads the pack among BSE 500 companies that have announced the highest percentage dividend by fixing a 2,000 per cent interim dividend (or Rs 40 per equity shares of Rs 2). This is followed by the likes of Eicher Motors and Symphony (both 1,000 per cent). Piramal Enterprises with 875 per cent, Sonata (450 per cent) and AIA Engineering (500 per cent) follow with high dividend payouts in percentage terms.
The government in the Union Budget 2016 announced an additional 10 per cent tax for those earning an annual dividend income of more than Rs 10 lakh. Dividend income received by investors was already taxed through Dividend Distribution Tax. The additional tax will be applicable from April 1, 2016 which means that the dividends declared before March 31, 2016 will not be taxable.
As per the new tax norms kicking in on April 1, dividend income in excess of Rs 10 lakh per annum in the case of an individual, Hindu Undivided Family (HUF) or a firm who is resident 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 (Dividend Distribution Tax) paid by companies.
Up to March 31, 2015, companies paid DDT at the rate of 15 per cent of the net dividend payable to shareholders. Though the rate of DDT remained unchanged in the subsequent year, the computation mechanism changed and increased the effective rate of dividend to 20.36 per cent (including surcharge and cess).
According to Centrum Broking, the new tax measure is targeted mostly at promoters who receive hefty dividends and ultra HNIs. The rationale behind the move is that those who have high dividend income are subjected to tax only at the rate of 15 per cent (DDT paid by companies), whereas such income in their hands would have been chargeable to tax at the rate of 30 per cent. The government has not changed the DDT rate or its application for companies.
(With inputs from Rahul Oberoi)