Mumbai, March 2: Spooked by the higher dividend tax announced in this year’s budget, India Inc is gearing up to reward investors with interim payouts to duck the higher levy.
Leading the pack are Mukesh Ambani companies Reliance Industries (RIL) and Indian Petrochemicals Corporation Ltd, while there are at least 13 others waiting in the wings to announce dividends.
During his budget speech, finance minister P. Chidambaram had announced that the dividend distribution tax would go up from 12.5 per cent to 15 per cent from the next financial year beginning April 1.
If the companies pay an interim dividend by March 31 this year, they will pay a dividend distribution tax at the rate of 12.5 per cent. But if the payout is declared after April 1, they will have to pay a 15 per cent tax on the dividend outgo.
“The boards of most of the companies will meet only in April or later to consider the fourth-quarter results. Usually, decisions about dividends are taken then. But if they do that, they will have to pay higher taxes. Therefore, they are essentially trying to beat the higher tax, which comes into effect from April 1,” sums up an analyst who expects many more announcements over the next few days.
Reliance Industries as well as group companies IPCL and Reliance Industrial Infrastructure, in separate announcements today, said their boards will meet on March 10 to consider interim dividends.
They could just be the beginners as there are scores of others who are keen to declare interim dividends.
During last fiscal, RIL had declared a dividend of 100 per cent, leading to a payout of Rs 1,394 crore. The tax on dividend for the year stood at Rs 195 crore.
On the other hand, the payout by ONGC was at over Rs 6,400 crore and NTPC at over Rs 2,300 crore.
In addition to Nalco, which has already made an interim dividend, others considering the option include Patel Engineering, FDC, Banco Products, KCP, Godawari Power, India Motor Parts, Ultramarine & Pigments, Nirma, Eicher Motors, Zandu Pharmaceutical, Navneet Publications and DMC International.
Though no multinational has been forthcoming on dividend, analysts expect them to reward their shareholders as they have a strong track record in making high payouts.
ONGC, Reliance, Infosys, ITC, Indian Oil, NTPC and SAIL are some of the big dividend paying companies.
Reports say that the finance minister’s proposal to raise the dividend distribution tax will lead to Indian companies paying out an extra Rs 1,800 crore.
With many companies planning interim dividends to beat the April 1 deadline, the question being asked is whether the higher tax will lead to companies scaling down dividends later. However, analysts do not fear such a possibility.