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Distribution of dividend

Distribution of dividend

Types of Dividend

Sole Proprietorship in India, is a one-man organization under which one can owns, manages & Controls of a business.

One of the primary benefit of sole proprietorship in India is that it registration is not required. No fees to be paid for starting a sole proprietorship business in India & no government paperwork & compliance to be fulfilled. No minimum capital investment requires in sole proprietorship in India & Sole proprietor in India has full control and ownership stake.

You get to keep entire profit or income you generate. Furthermore, the tax benefits of sole proprietorship in India prevent double taxation. You will file returns & pay taxes only in your name. There are no separate income tax returns for sole proprietorship in India. Only separate profit & loss account & balance sheet is prepared for sole proprietorship business in India.

There are 2 types of dividend:

  • Final dividend: Final dividend is declared at AGM
  • Interim dividend: Interim dividend is declared before AGM

Source of Dividend

The dividend can be distributed out of the profit of current year or undistributed profits of previous years or both.

Steps of Dividend distribution

1. Set off previous year losses before declaration of dividend.

2. Pay unpaid dividend to preference shareholder before declaration of dividend.

3. The rate of dividend should not be more than the average rate of dividend of last 3 years (not applicable on company which has not declared dividend in all the last 3 years);

4. The total amount withdrawn from profits cannot be more than 1/10th of [Paid up share capital + Free reserves]; at first, utilizes the amount withdrawn to set off any losses of the current year;

5. Maintains the balance of free reserves after withdrawal to a minimum of 15% of Paid up share capital of the company as per the latest audited financial statements.

6. A separate Dividend Account is required is required to be opened with any Schedule Bank. Within 5 days of declaration of Dividend

  • Pay dividend within 30 days of declaration to the eligible shareholders
  • Dividend shall be paid in cash. Payable in cash include paid by cheque or warrant or any electronic mode.
  • The amount deposited in above mentioned account can’t be utilized for any other purpose.
  • Any amount due from the shareholders can be adjusted against Dividend payable to shareholders.
  1. A separate Unpaid Dividend Account is required is required to be opened with any Schedule Bank. Within 7 days after expiry of the period of 30 days of declaration of dividend 
  1. The dividend remaining unclaimed or unpaid (along with interest accrued, if any) in the Unpaid dividend account for a period of 7 years from the date of transfer of that amount in Unpaid dividend account shall be transferred to the Investor Education and Protection Fund (IEPF). This amount shall be transferred to IEPF within 30 days of expiry of 7 years.
  • Company shall maintain the record of shareholders names, addresses, amount, certificate number, etc., whose unclaimed or unpaid dividend is transferred to IEPF.
  • Company shall intimate the shareholders whose unclaimed dividend is being transferred to IEPF, at least 3 months before the date of transfer.
  1. A shareholder who wants to file refund claim for dividend transferred to IEPF shall download Form IEPF-5 from the IEPF website and submit it after filling in the details. After verification of the claim, IEPF releases the refund through e-payment.



Taxation of dividends distributed

In the hands of shareholders

Dividend received by shareholders from domestic companies (Indian companies) is not taxable. But in case of resident shareholders being individual/ HUF/ firm, dividend received by them shall be taxable @10% if the total amount received during the year is more than Rs.10 lakhs.

In the hands of Company

No DDT from 01.04.2020

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