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Shareholders can expect a flurry of dividend announcements from their companies through March, according to a report by Centrum Wealth, before the new 10 per cent tax on dividend income kicks in from April.
In Monday’s Union Budget, Finance Minister Jaitley had said tha t shareholders who receive annual dividends above Rs 10 lakh will have to pay 10 per cent tax on such income. The step is targeted mostly at promoters and ultra HNIs, whose shareholding is significant and dividend income large.
According to the report, “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 (dividend distribution tax paid by companies), whereas such income in their hands would have been chargeable to tax at the rate of 30 per cent. The effective rate of DDT is now 20.36 per cent (including surcharge and cess).''
Centrum predicts that before this new tax kicks in the next financial year, companies with high promoter holdings will be in a rush to declare dividends at the lower tax rate this month. Already 13 companies have declared dividends this month after Monday’s Budget announcement. This includes Alkem Laboratories, Cadila Healthcare, Divi’s Lab, Godrej Industries, Suven Lifesciences, and Mahindra Lifespace Developers.
Keep an eye on particularly cash-rich companies, Centrum said, like Infosys, NMDC, TCS, RIL, BHEL, HCL, Oil India Wipro and MRPL, who have cash balances above Rs 8,000 crore at least.
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