Even as many companies have set their record dates for dividend announcement, as many as 203 companies have already declared interim dividend worth Rs 27,901 crore so far in February.
India Inc’s earnings recovery may take some more time, but that doesn’t necessarily stop many companies from paying out higher dividends for the fiscal FY20, especially where the promoter stake is high. Thanks to the change in treatment of dividend distribution tax (DDT) which is now taxed in the hands of recipients instead on companies earlier.
While most companies are advancing their dividend payout to avoid extra tax following the change in dividend tax treatment, there are some that have not only advanced it, but also enhanced the dividend payout for the year FY20.
Even as many companies have set their record dates for dividend announcement, as many as 203 companies have already declared interim dividend worth Rs 27,901 crore so far in February. In contrast, these companies together distributed dividend (including interim and final) worth Rs 26,175 crore in FY19, Capitaline data showed.
What’s more, 14 of these companies which declared no dividend in FY19 have announced a combined interim dividend worth Rs 2,898 crore in February alone.
The rise in dividend payout comes as no surprise as promoter holding in these companies stands significantly high. The average promoter holding of the clutch of 203 companies stood at nearly 60% at the end of December 2019
Tushar Sachade, partner – tax and regulatory services at PwC India, explains that domestic companies with higher promoter holding will declare interim dividend before March as they can save substantial amount of tax by doing so. “With the abolition of dividend distribution tax (DDT), any individual who earns more than Rs 5 crore of total income in a year will end up paying as much as 43% tax on dividend income against the earlier rate of 35% (DDT of 21% + additional 14% tax on dividend above Rs 10 Lacs),” Sachade said.
For instance, air cooler maker Symphony in which promoter holds 75% of equity has announced a special dividend of Rs 18 per share along with an interim dividend of Rs 2 in February. With a special and three interim dividends so far in FY20, the total DPS for the year rose to Rs 23 per share against the full year FY19 per share dividend of Rs 4.50.
It is noteworthy that MNCs which usually boast higher dividend payout ratio compared to those of domestic firms don’t seem to be in a rush as none of them have had any interim dividend announcements so far in February. Even though a couple of them – Sanofi India and Linde India – announced special dividend of Rs 243 and Rs 7.50 per share respectively.
According to Sachade, the current dividend tax structure is more beneficial for non-resident investors or MNCs like Colgate Palmolive, Glaxo Pharma and HUL as they will be able to resort to the provisions of a tax treaty, which may prescribe a lower tax rate of 10%-15%. He further added that these companies can also claim credit in their home country for taxes paid in India. So MNCs will not rush to declare dividend before March 31.