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All about Dividend under Companies Act, 2013

Section 123(1) - Sources for declaration of dividend

The dividend shall be declared or paid by a company for any financial year from the following sources:

(a) Profits of the current financial year.

(b) Profits of any previous financial year (credit balance in profit and loss account and free reserves).

(c) Money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government.

Section 123(3) - Declaration of interim dividend

The Board of Directors may declare an interim dividend at any time during the period from the closure of the financial year till the holding of the annual general meeting. The interim dividend shall be declared from the following sources:

  • Surplus in the profit and loss account
  • Profits of the financial year in which such dividend is sought to be declared
  • Profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.

If the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average (rate of) dividend declared by the company during the immediately preceding three financial years.

Section 123(4) - Deposit of dividend amount

The amount of the dividend (including interim dividend) shall be deposited in a separate account maintained with a scheduled bank within 5 days from the date of declaration.

Example: ABC Limited at its Annual General Meeting (AGM) (held on 22nd September 2021) declared a dividend of Rs 3 per share by passing an ordinary resolution. The amount of dividend must be deposited in a scheduled bank in separate account latest by 27th September 2021.

Section 123(5) - Payment of dividend

(a) Dividend shall be payable only to the registered shareholder or to his order or to his banker.

(b) Dividends are payable in cash. Dividends that are payable to the shareholders in cash may also be paid by cheque or dividend warrant or through any electronic mode.

(c) In the case of Nidhis, any dividend payable in cash may be paid by crediting the same to the account of the member, if the dividend is not claimed within 30 days from the date of declaration of the dividend.

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TaxGyata Team

TaxGyata Team