The post-budget rush by companies to declare dividends and pay it to all shareholders before March 31 will result in total dividend payouts of about Rs 11,980 crore by about 155 firms, of which about Rs 5,930 crore will go to Indian promoter groups. This is as per dividend announcements made till last week.
An FC analysis of dividend data available with Capitaline reveals that Indian promoters of Reliance Industries and Bajaj Auto are set to receive the highest dividend payouts to the tune of Rs 1,537 crore and Rs 713 crore, respectively. The next three largest dividend payouts, in the case of Indian promoter groups, would be by Hero Motocorp (Rs 277 crore), Cadilla Healthcare (Rs 245 crore) and Torrent Pharmaceuticals (Rs 181 crore).
Listed companies, and perhaps many unlisted ones as well, are trying to save 10 per cent tax an individual or a company or an HUF (hindu undivided family) will have to pay on their dividend income in excess of Rs 10 lakh with effect from financial year 2016-17 (FY17). This tax, announced in this year’s budget, will be over and above the indirect tax paid by shareholders by way of dividend distribution tax.
Financial Chronicle was the first newspaper that reported companies making a beeline to pay dividend before March 31 in order to save on tax.
Companies normally declare and pay dividends after a financial year is over. So, under normal circumstances, the dividends for FY16, would have been announced and paid out in the first or the second quarter of FY17.
When dividend payouts happen, a majority the promoters of companies, who are either individuals, companies or HUFs, or a mix of all three, end up receiving dividend payouts of more than Rs 10 lakh, which would attract the new 10 per cent dividend tax.In our analysis, the total dividend payout to Indian promoters by the 155-odd companies worked out to Rs 5,930 crore.
Even if one assumes that only 50 -75 per cent of this amount, that is Rs 2,965 crore -Rs 4,445 crore, would be subjected to the new dividend tax, if payouts are take place in FY17, then the government would have recovered Rs 296 crore-Rs 444 crore at the 10 per cent dividend tax rate. But as things stand now, this is the approximate range of amount that the promoters have ended up saving from being taxed.
According to Girish Vanvari, head of tax at KPMG India, the dividends being paid out are from the company’s profit in FY16 and there is nothing wrong if any one is trying to plan for tax by receiving the dividends within the same year.
Among promoters, Indian promoters stand to gain from the advancing the date of dividend payouts. Foreign promoters would not be subject to domestic tax rules on dividends.
In our analysis, 10 promoter groups receiving the largest dividend payouts (see chart) had an average collective stake of about 48.8 per cent in their companies. They would be receiving dividend payouts worth Rs 3,650 crore, while the rest of the shareholders in would get Rs 3,880 crore
In some cases, promoter shareholders include trusts. For instance, in the case of Cadila Healthcare, the largest promoter shareholder, as on December 31, 2015, was Zydus Family Trust with a stake of 74.78 per cent, out of the total promoter stake of 74.79 per cent. It was not immediately clear whether a trust body such as this would be subject to the new dividend tax of 10 per cent.
In Reliance Industries, 46.6 per cent is held by promoters. Mukesh Ambani holds just 0.12 per cent stake and five other immediate Ambani family members hold a collective 0.55 per cent stake.
The larger promoter-shareholders in Reliance Industries include Petroluem Trust (through trustees for sole beneficiary Reliance Industrial Investments and Holdings) which has a 3.8 per cent stake, Kankhal Trading LLP (4.6 per cent) and Bhuvanesh Enterprises LLP (4.3 per cent).
It could not be immediately ascertained whether limited liability enterprises (LLPs) would be subject to the new dividend tax. But companies are seemingly not taking any chances with the income tax authorities.
