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What is interim dividend?

Interim dividend is a dividend declared and paid before the finalization of accounts for the year. According to section 123(3) of Companies Act, the Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from the closure of financial year till holding of the annual general meeting.

Conditions for declaration of interim dividend

(i) The interim dividend can 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.

(ii) Declaration of interim dividend shall be ratified at Annual General Meeting (AGM) by the members. 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

For example, if a company declared a dividend at the rate of 14% during the immediately preceding three financial years, then in case the company incurs a loss in the current financial year, the interim dividend can be declared at a rate which is not higher than 14%.

(iii) The amount of interim dividend shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of dividend.


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CA Rupali Gupta

CA Rupali Gupta