Finance minister P. Chidambaram may not have found favour with corporate India with his Budget proposal for additional tax on dividends, but investors are not complaining as over 200 companies have already announced interim dividend payouts before the proposed hike in levy comes into effect.
Making things even merrier for the market, companies are also rushing in with announcements for allotment of shares under the employee stock option plan (Esop), an area that caught Chidambaram’s attention in this year’s Budget for collecting taxes.
Ever since Budget 2007-08 on 28 February, as many as 181 companies listed on the Bombay Stock Exchange have announced their plans to pay interim dividends in just 10 days, while 19 companies have made public their intention to allot shares under Esop before the Budget proposals come into effect on 1 April. Besides, a number of companies listed on other exchanges have also announced such plans and the list is multiplying.
Chidambaram said in his Budget speech that the rate of dividend distribution tax (DDT) would be raised from 12.5% to 15% on dividends distributed by companies, while he also proposed to bring Esops under the ambit of fringe benefit tax.
FM said, however, that a 2.5 % hike in the levy would not put any major burden on taxpayers, as most investors receiving dividend income are in the higher tax bracket.
According to market analysts, the spate of companies rushing in to announce interim dividends by 31 March, when it comes into effect, is expected to continue as by announcing dividend in the current financial year they would not attract the additional tax burden.
Moreover, it is not only small companies that are rushing in with their announcements. The list of those who have announced their dividend payout plans include blue chips like Reliance Industries, HLL, Hindalco, Mahindra & Mahindra and Grasim Industries.
Companies making dividend payouts this month also include state-run corporates like steel giant SAIL, aluminium major Nalco and gas utility firm GAIL.
Besides, blue chips like Bharti Airtel, ICICI Bank, Satyam Computer, HLL and ACC have also declared plans to allot shares under the Esop scheme.
Although the ESOP tax levy is unlikely to come into effect from the beginning of the new fiscal year, the analysts believe that the companies do not want to take any chance and might continue to advance their ESOP plans.
Those who have announced share allotments under ESOP also include HDFC, HDFC Bank, HCL Technologies, NIIT Technologies, NIIT Ltd, Kotak Mahindra Bank, Patni Computers, Sasken Communications and 3i Infotech.
While there might not be a large number of companies making fresh announcements for board meetings to consider dividend payouts this month due to regulatory compliance related to prior notice, a number of companies have already scheduled their board meetings for this month in anticipation for budget proposals for any changes in the tax regime.
A similar rush to pay interim dividend was witnessed in 2002, when then Finance Minister Yashwant Sinha had proposed in his budget speech to make dividends taxable in the hands of the shareholders.
In their rush to pay interim dividends before the March 31 deadline, many companies even failed to follow the mandatory 21-day notice period, forcing the Finance Ministry to ask the market regulator to take immediate action.
As a result of which some firms had to call off their plans after SEBI insisted on the 21-day notice in 2002.
This time around, those who are making interim dividend payouts also include TV 18, IPCL, Sun Pharma, Colgate Palmolive, Nirma, United Spirits, UTI Bank, Tech Mahindra, Nicholas Piramal, Dabur, Nestle, Aditya Birla Nuvo, L&T, Suzlon Energy and Ultratech Cement.