Payment of Interim and Final dividend -Procedure and Formalities -Companies Act, SEBI and Income Tax Act

Companies declaring and paying interim and final dividend needs to follow some procedures and needs to complete statutory formalities to ensure payment of dividend in a proper way without violating any statutory regulations. They are:


Payment of Interim Dividend Procedure and formalities
Companies with sufficient surplus may declare and give interim dividend to the shareholders. The following are the procedure to be adopted by which declare dividend.
Ensure that the Articles of Association do not exclude the power to declare interim dividend or the Articles of Association of the company empowers to declare dividend.  

Profits for the part of the financial year upto the time of proposed declaration should be sufficient to justify payment of interim dividend. Availability of profits should be ascertained after taking in to account depreciation and compulsory transfer to reserves. Auditor's opinion should also be obtained.
If it is a listed company, inform the stock exchange about the Board meeting to consider the payment of interim dividend.
Resolution of the board of directors should state the rate of dividend the date in reference to which shareholders registered in the register of members are to receive interim dividend record date or the period of closure of the Register of members and transfer of books, date of posting of dividend warrants etc. The Company Secretary may authorized to take necessary action in regard.
In case of Listed companies, inform the Stock Exchange of the date of closure of Register of members.
Publish a notice in a news paper circulating in the district in which registered office of the company is situate at least seven days before the closure of Register of Members or the record date fixed.
A separate interim dividend account with the bank should be opened and necessary instruction is to be given to the bank.
Dividend Warrant is to be posted within 42 days from the date of declaration of interim dividend.
Necessary permission of the Reserve Bank of as per Provision of FERA, 1973 is to taken to send dividend warrants to non-resident shareholders.  
Provision for payment of Final Dividend - Procedure and formalities
To declare and pay final dividend, the following procedures and formalities are to be completed:
Meeting of the Board of Directors is to be conducted to consider amount of dividend to be recommended to the ensuing Annual General Meeting (AGM)
In case of listed companies it is necessary to give information related to the aforesaid board meeting without delay to the recognized stock exchange with which the shares of the company are listed.
 

Make sure that that the required percentage of profits is transferred to the Company's reserves.
Fix up the book closure date/record date for payment of dividend and give at least 42 days notice to the stock exchanges with which the shares of the company are listed after the holding of the Board meeting all dividends recommended or declared.
The business of declaration of dividend is to be included in the agenda of the Annual General Meeting.


An ordinary resolution is to be passed in the Annual General Meeting declaring the dividend.
Listed companies should fix and notify the recognized stock exchange with which the shares of the company are listed at least 21 dayss in advance of the date on and from which the dividend will be payable and issue simultaneously the dividend warrants which shall be excusable at par at all the branches of the company's bankers so as to reach the shareholders on or before the date fixed for payment of dividend.
Dividend amount is to be paid within 42 days of declaration either in each or by cheque warrant sent through the post directed at the registered office address of the shareholders entitled to the payment of the dividend. In the case of joint shareholders the dividend should be sent to the registered address of the joint shareholders who is first named on the Register of members of such person and to such address as the shareholder or the joint shareholders may in writing direct.
Board of Directors meeting is to be held to authorize opening dividend account with provision for
Styling dividend account as "Unpaid Dividend Account" after 49 days from the date of declaration of dividend.
Autographic signature of authorized signatories of the company on the dividend warrants above certain amount.
Execution of indemnity in connection with collection of paid warrants from the bank
Income Tax Certificate and the warrant in form No. 19 of the Income Tax Rules, 1962 deduct tax at source wherever the dividend amount is more than Rs. 2,500/- for non-corporate shareholders and deposit the same with the tax authorities within a week commencing from the date of the warrant.


Statement of deduction of tax in Form No. 26 of Income Tax rules, 1962, is to be send to the concerned income tax officer within 14 days of the date of such deduction.
Total amount of unpaid or unclaimed dividend is to be transferred to the special account opened by the company in this behalf within 7 days from the date of its declaration.
Where instruments of transfer have been received by the company in relation to some shares and the transfer of such shares has not been registered when the dividend warrants were posted, ensure that amounts of dividend in relation to such shares is also kept in the 'unpaid dividend account' unless the company is authorized by the registered holder of those shares in writing to pay the dividend to the transferees.


Regarding dividend on new shares issued during the year ensure that:
Dividend is to be calculated on paid up value of shares where the offer document provides for payment of dividend on the paid up value.
Dividend is to be calculated on the pro rata basis on the shares allotted during the year from the date of allotment.
Duplicate indemnity in lieu of dividend warrants lost, torn, defaced or mutilated is to be obtained where duplicate dividend warrants are to be issued.    

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