Dividend Declaration Process
The dividend declaration process in Indian listed companies involves a board recommendation of the dividend amount, followed by shareholder approval at the AGM (for final dividends), with payment required within 30 days of declaration, as governed by the Companies Act, 2013.
The process of declaring and paying dividends in India is regulated by the Companies Act, 2013 (Sections 123-127) and SEBI's LODR Regulations. Understanding this process helps investors know what to expect after a dividend announcement and how to ensure they receive their entitlement.
Dividends may be of two types: interim dividends and final dividends. An interim dividend is declared by the board of directors at any time between two AGMs, without requiring shareholder approval. It is paid from the profits of the financial year or out of the surplus in the profit and loss account. Final dividends, on the other hand, are recommended by the board and must be approved by the shareholders at the AGM.
Once the board recommends a final dividend, it is announced to the stock exchanges under LODR, along with the record date. Shareholders who hold shares on the record date are entitled to receive the dividend. After AGM approval, the company must pay the dividend within 30 days of declaration. Interim dividends must also be paid within 30 days of the board's decision.
Unpaid or unclaimed dividends must be transferred to a special Unpaid Dividend Account maintained with a scheduled bank within 7 days of expiry of the 30-day payment period. If the dividend remains unclaimed for 7 consecutive years from this account, it must be transferred to the Investor Education and Protection Fund (IEPF), along with the shares on which the dividend was unclaimed.
Listed companies must also file dividend-related disclosures with the stock exchanges promptly. The LODR mandates that the company inform the exchange about the board meeting where dividend will be considered, the record date, and the outcome of the board meeting. Investors receiving dividends are subject to Tax Deducted at Source (TDS) on dividend income above Rs 5,000 from a single company per financial year, following the shift to the classical dividend taxation system from April 2020.