Every deadline, on one page
| Event | Time limit | Source | If missed |
|---|---|---|---|
| Deposit the declared dividend (including interim) in a separate scheduled-bank account | 5 days of declaration | Sec 123(4) | The default begins before a single shareholder is paid |
| Pay the dividend to entitled shareholders | 30 days of declaration | Sec 127 | Company: interest at 18% p.a. for the default period · every director in default: imprisonment up to 2 years and fine of at least ₹1,000 per day |
| Transfer what remains unpaid/unclaimed to the Unpaid Dividend Account | Within 7 days after the 30 days end | Sec 124(1) | Interest at 12% p.a. on the amount, accruing for the benefit of the shareholders |
| Publish the statement of unpaid amounts on the company website | Within 90 days of the transfer | Sec 124(2) | Its own Section 124 default |
| TDS — deduct and deposit | At payment / credit; deposit by the 7th of the next month | Sec 194 / 195 | Interest, late fees and disallowance under the income-tax machinery |
| Transfer 7-years-unclaimed dividend — and the underlying shares — to the IEPF | Within 30 days of the seven years completing | Sec 124(5)–(6) | The shareholder's recovery route narrows to a claim from the Authority in Form IEPF-5 |
Introduction
A dividend looks like the simplest corporate action there is: the company made money, the shareholders get some. The Companies Act disagrees at every step. Section 123 polices where the money may come from — profits after depreciation, free reserves under strict conditions, and never revaluation gains. Section 127 polices how fast it must go out — thirty days, on pain of 18% interest and personal criminal exposure for directors. And Section 124 polices what happens to every rupee nobody collects — a seven-year escrow ending in the Investor Education and Protection Fund, which since 2016 has taken not just the unclaimed money but the shares themselves.
Since April 2020 a fourth regime rides along: with dividend distribution tax abolished, every dividend is taxable in the shareholder's hands and the company is the tax collector — TDS at 10% for residents past the ₹10,000 threshold (raised from ₹5,000 by Budget 2025), 20% for the PAN-less, and 20%-plus for non-residents unless a tax treaty says less. Get the withholding wrong and the company answers for the shortfall with interest.
For foreign-owned subsidiaries, this article is the second half of a conversation we began in our guide to Sections 185 and 186: the exchange-control framework offers no ordinary route for an Indian subsidiary to lend its surplus upward, so the dividend is the lawful workhorse of repatriation — freely remittable as a current-account transaction once declared and taxed, with the treaty rate, the tax residency certificate and the Form 15CA/15CB machinery deciding how much of each rupee actually lands with the parent. A group that plans its dividend calendar plans its cash; a group that improvises it in the quarter HQ needs money is the group that starts asking about unlawful shortcuts.
This guide runs the full life of a dividend in order: the sources rulebook and the dry-year formula for paying out of reserves; interim versus final and who may declare what; the five-day, thirty-day and seven-day clocks; TDS by shareholder type with the current thresholds; the remittance file for a foreign parent; the seven-year path to the IEPF and the IEPF-5 route back; the Section 127 penalty architecture with its statutory defences; and the mistakes that recur in audits and diligence. It belongs to the same series as our ADT-1, SH-7, PAS-3, CHG-1, BEN-2 and Sections 185/186 guides — the corporate-clock discipline, applied to the one filing shareholders actually feel in their bank accounts.
1. Where a dividend may come from — and where it may not
- Profits of the current year, after providing for depreciation — the ordinary case
- Accumulated profits of previous years transferred to free reserves, after depreciation — subject to the dry-year conditions below when current profits are absent or inadequate
- Money provided by the Central or State Government under a guarantee, where applicable
- Revaluation reserves or any unrealised or notional gains — capital appreciation on paper funds no payout
- Any reserve other than free reserves — the statutory proviso is explicit
- Any dividend at all while a default in repaying deposits under Sections 73–74 subsists — Sec 123(6)
- Before previous years' losses and unabsorbed depreciation are set off against current profits — the first proviso's quiet precondition
Two features of the source rules deserve a second look. The transfer to reserves before declaring — mandatory in percentage slabs under the 1956 Act — is now voluntary: the company may transfer "such percentage as it considers appropriate", including nothing, which changed dividend capacity arithmetic for every company that still runs old board templates. And "free reserves" carries its defined meaning: reserves available for distribution per the latest audited balance sheet — so a spectacular half-year does not fund a dividend the audited numbers cannot.
1.1 The dry-year formula — Rule 3's three locks
Declaring out of accumulated reserves when current profits fall short
- Rate cap: the dividend rate must not exceed the average of the rates of the three preceding years — a condition that falls away only if no dividend was declared in each of those three years.
- Drawal cap: the amount drawn from reserves must not exceed one-tenth of paid-up capital plus free reserves — and what is drawn must first be applied to set off the current year's losses.
- Residue floor: after the drawal, the balance of reserves must not fall below 15% of paid-up share capital per the latest audited balance sheet.
The formula exists to let a company with one bad year maintain its dividend record without hollowing itself out — and every condition is checked from the audited numbers, so the computation belongs in the board pack, not in a post-declaration reconstruction.
1.2 The computation, done properly
"Profits after depreciation" is a defined discipline, not an accounting courtesy: depreciation is provided in accordance with Schedule II before a rupee is distributable, and the first proviso then quietly demands that carried-forward losses and unabsorbed depreciation of earlier years be set off against the current year's profits before any declaration. A company that turned profitable this year but carries last year's wounds computes its distributable surplus after the healing, not before. The clean board pack therefore shows the arithmetic in four lines — audited profit, Schedule II depreciation, prior losses and unabsorbed depreciation set off, distributable balance — and, where the dry-year route is used, the three Rule 3 locks computed beneath. Boards that approve a number without the four lines are approving a conclusion without its premises; adjudicators and auditors read it exactly that way.
1.3 Record date — who actually gets paid
The dividend is paid to the persons on the register of members on the relevant date — the record date the board fixes, or the book-closure period for companies that use one. Everything downstream keys off that snapshot: the TDS census, the bank file, the foreign-remittance pack, the unpaid-account reconciliation. Two hygiene points prevent most disputes. First, settle transfers in flight: a private-company share transfer signed before the declaration but registered after it belongs, absent contrary agreement, to the registered holder on the record date — so transfer paperwork around a declaration should allocate the dividend expressly. Second, joint holdings pay the first-named holder; succession cases and un-transmitted folios are where unclaimed dividends are born, and where the seven-year IEPF clock quietly starts.
2. Interim and final — two dividends, two machines
| Interim dividend | Final dividend | |
|---|---|---|
| Declared by | The Board, by resolution — any time during the financial year, or between its close and the AGM | The members at the AGM, by ordinary resolution, on the Board's recommendation |
| Source | Surplus in the profit & loss account plus profits of the year to date | The full Section 123 sources, including the dry-year route from reserves |
| The built-in brake | Where the company has incurred a loss up to the end of the preceding quarter, the interim rate cannot exceed the average of the three preceding years' rates | Members may reduce the recommended rate but can never increase it — the Board's number is the ceiling |
| Once declared | Identical. Declaration creates a debt: the 5-day bank deposit, the 30-day payment window, Section 127's consequences and the Section 124 escrow apply to both without distinction — an interim dividend cannot be "revoked" because the year later soured. | |
2.1 Preference shares, waivers and the order of payment
Two register-level questions recur at every declaration. Preference first: the preference shareholders' fixed entitlement ranks ahead of equity — no equity dividend is lawfully paid while the period's preference dividend stands unpaid, and cumulative preference shares stack their arrears across the lean years until cleared. Foreign-funded structures using compulsorily convertible preference shares should read the instrument's dividend clause before every equity declaration — a token coupon forgotten for three years is three years of arrears standing between the company and its equity payout. Waivers second: a shareholder may waive or forgo a declared dividend by clear written instrument before payment — a promoter gesture in stressed years, or a parent's choice in a group with minority Indian holders — but the waiver binds only the waiving holder; the company's clocks and obligations to everyone else run unchanged, and the waived amount is dealt with per the instrument, not silently absorbed.
3. The payout passbook — declaration to IEPF
3.1 The separate account — small rule, large function
The five-day deposit into a dedicated scheduled-bank account does two jobs the statute never spells out but every practitioner relies on. It ring-fences the payout from the operating business — group cash-pooling, sweep arrangements and an aggressive CFO's working-capital instincts cannot lawfully reach money sitting in the dividend account; and it creates the audit trail — one account whose credits equal the declaration and whose debits equal the payments, reconciling to the paise, is the single document that answers every later question from auditors, the unpaid-account computation and any Section 127 inquiry. The account is opened per declaration (or maintained as a standing dividend account), funded gross of nothing — the full declared amount goes in; TDS is administered from it as payments run — and closed only into the Unpaid Dividend Account, never back into general funds. Treat it as the spine of the payout file.
4. TDS — the company as tax collector
With dividend distribution tax gone, every payout is taxable in the shareholder's hands and the company withholds at source. The matrix that decides each shareholder's line:
| Shareholder | Provision | Rate | The working detail |
|---|---|---|---|
| Resident individual — up to ₹10,000 aggregate in the FY | Sec 194 threshold | Nil | Threshold raised from ₹5,000 by Budget 2025, effective FY 2025-26 — per shareholder, per company |
| Resident individual — above the threshold | Sec 194 | 10% | Form 15G/15H eliminates TDS for below-taxable-limit holders and senior citizens |
| Resident — no or invalid PAN | Sec 206AA | 20% | The single most common reconciliation pain in private companies — collect PANs before the record date |
| Resident company / LLP shareholder | Sec 194 | 10% | The individual threshold does not shelter corporate holders |
| LIC / GIC / insurers; specified mutual funds; business trusts from SPVs | Sec 194 exemptions | Nil | On declaration of beneficial ownership / specified status |
| Non-resident (including the foreign parent) | Sec 195 · Sec 115A | 20% + surcharge & cess, or the DTAA rate if lower | Treaty rates commonly 5–15% — available against a Tax Residency Certificate, Form 10F and beneficial-ownership comfort; remittance documented on Forms 15CA/15CB |
| Foreign portfolio investors | Sec 196D | 20% (treaty-subject) | Through the custodial chain |
The mechanics matter as much as the rates: deduct at credit or payment (whichever is earlier), deposit by the seventh of the following month, report in the TDS return, and issue Form 16A — because a withholding shortfall is the company's liability, with interest, whatever the shareholder later pays in assessment.
4.1 The withholding calendar — five dates that keep the company safe
Run TDS as its own mini-project with five dated steps. Before the record date: the shareholder tax census — PANs validated against the portal, 15G/15H collected, residency confirmed, treaty documents (TRC, electronic Form 10F) gathered for every non-resident. At declaration: the line-by-line withholding schedule — each holder, each rate, each net amount — approved with the payout file. At payment or credit (whichever is earlier): deduction, which for dividends credited to the parent's ledger can arrive before the wire does. By the 7th of the following month: deposit against the company's TAN. By the quarterly due date: the TDS return, and Form 16A to every holder. The pattern of failure is always the same — a correct rate table applied to an unverified census — and the fix is always the same: verify the census first, because every downstream document inherits its errors.
4.2 The foreign-parent remittance file
For a foreign-owned subsidiary, the dividend is where repatriation actually happens — the lawful answer to the upstream-loan instruction the exchange-control framework refuses. The file that makes each remittance clean: the board/AGM resolutions and the source computation behind them; the parent's Tax Residency Certificate and electronic Form 10F, with beneficial-ownership comfort where the treaty demands it; the rate memo — 115A default versus treaty article, surcharge and cess computed; the CA's Form 15CB and the company's Form 15CA for the remittance; the AD bank's KYC pack; and the TDS deposit and Form 16A trail. Run annually as a calendar — declaration timed after the audit, remittance batched, documents refreshed each year — the dividend becomes the boring, reliable pipe a group treasury actually wants. Improvised in a cash-hungry quarter, every one of those documents becomes a bottleneck.
5. Section 127 — the cost of paying late
The section carries its own defences, and they are worth knowing precisely because they are narrow: no offence where the dividend could not be paid by operation of law; where the shareholder's own instructions could not be complied with and were communicated; where the amount was lawfully adjusted against sums due from the shareholder; where the dividend is genuinely disputed; or where the non-payment was not due to any default of the company. What the list conspicuously does not contain: cash-flow difficulty, a group instruction to hold, or the bank formalities taking time. Declare only what the company can pay in thirty days — the statute assumes nothing less.
5.1 The directors' protection protocol
Because Section 127's exposure is personal and its defences are narrow, the protective habits belong in the boardroom, not the litigation file. Declare only against confirmed cash — the resolution should recite that the payout and TDS are covered by available balances or committed lines. Diarise the three clocks at the meeting itself — day 5, day 30, day 37 — with a named owner for each. Where a payment genuinely cannot be made — a court attachment, a shareholder's incomplete bank mandate, a bona fide title dispute — paper the defence in real time: the operation-of-law order on file, the communication to the shareholder recorded, the disputed folio minuted; a defence reconstructed months later persuades no one. And a director who dissents from an imprudent declaration should have the dissent minuted — Section 127 reaches directors knowingly party to the default, and the minute is what the phrase turns on.
6. The IEPF — the seven-year sweep and the way back
The Investor Education and Protection Fund is where forgotten dividends retire — and, since the 2016 rules, where the forgotten shareholding follows them. The company's duties: transfer each seven-year-unclaimed amount within thirty days; transfer the underlying shares where dividends were unclaimed for seven consecutive years (a single claimed dividend in the chain saves the shares); file the prescribed statements identifying every amount and holder; and maintain the nodal-officer machinery the rules require. The shareholder's route back exists but narrows: a claim to the IEPF Authority in Form IEPF-5, verified through the company, with the entitlement documents — a process measured in months, against the minutes an encashment would have taken in year one.
For companies, the practical exposure is registry hygiene: unclaimed dividends cluster around stale addresses, unbanked physical warrants, succession gaps and demat migrations. An annual campaign — reminder letters before each seven-year cliff, the website statement kept current, the unpaid registers reconciled — costs an afternoon and prevents both the shareholder grievances and the IEPF filings that follow neglect. For foreign-owned companies with a handful of shareholders, the same rules technically apply, but the real IEPF risk sits with legacy Indian shareholders from pre-acquisition history — find them before year seven does.
6.1 The company's IEPF machinery, in practice
The rules translate into a short standing apparatus. A nodal officer (a director) and deputies are designated to the Authority for verification of claims, with their details on the website. The annual statements identifying unpaid amounts and their holders are filed within the prescribed windows, and the seven-year transfers — money and, where the consecutive-years test is met, shares — go with their own statements, the shares moving to the Fund's demat account. On the claim side, the company is not a bystander: every IEPF-5 routes to it for a verification report within the prescribed period, and a company that sits on verifications converts its former shareholders' delay into its own default. The working rhythm that keeps all of it trivial: one annual IEPF day on the compliance calendar — reconcile the unpaid registers, refresh the website statement, chase the approaching cliffs, clear pending verifications — documented in a single file the auditor sees each year.
7. Three matters from practice
A Japanese parent's Indian subsidiary sat on growing surplus; group treasury's first instruction was a six-month upstream deposit — the transaction the exchange-control framework does not offer. The redesign: an annual dividend calendar — interim after Q2 visibility, final after audit — with the treaty file (TRC, 10F, beneficial ownership) refreshed each April and the 15CA/15CB pack templated.
The result: a 10% treaty withholding instead of improvisation, remittances landing within a fortnight of each declaration, and a treasury that stopped asking for the unlawful version because the lawful one became predictable. Repatriation planning is not a transaction; it is a calendar.
A trading company's board, flush after two strong quarters, declared a generous interim dividend in October. The second half collapsed; by February the company was arranging working capital, and someone proposed "reversing" the October declaration that had still not been fully paid out.
The position: there is no reversing a declared dividend — the debt arose in October, the 30-day window had long lapsed, 18% interest was accruing, and the directors' personal exposure under Section 127 was live. The repair was payment, borrowed if necessary, plus interest. The lesson sits in the interim brake the board never ran: the preceding-quarter test and honest full-year visibility exist precisely so that October's confidence is not February's default.
A closely-held company declared its first dividend across nine shareholders — early employees, two NRI angels, a family trust. The registrar's spreadsheet had PANs for six. TDS was deducted at a uniform 10%; the shortfall surfaced in the TDS return's validation, months later, with interest.
What the clean version looks like: a shareholder tax census before the record date — PAN or 206AA's 20%; residency status or Section 195's regime; 15G/15H where available; treaty documents for the NRIs — so that every line of the payout runs at its correct rate on day 30, not at a blended guess corrected in the next quarter's cash.
A European group acquired a 20-year-old Indian company from its promoters, confident the register held only the sellers. Diligence sampled the unpaid-dividend trail and found something else: forty-one small legacy shareholders from a 2000s private placement, dividends unpaid across multiple years, no Unpaid Dividend Account ever opened, no website statement, and three folios past the seven-year line with neither money nor shares transferred to the IEPF.
What it cost: a completion condition requiring the entire Section 124 machinery to be built retroactively — accounts, statements, IEPF transfers with late-period explanations — plus an indemnity for the shareholder claims and the interest accrued at 12% on delayed transfers. The lesson for buyers and sellers alike: the unpaid-dividend record is a picture of how a company treats the shareholders who cannot advocate for themselves, and sophisticated diligence reads it exactly that way. Sellers should clean it before the process starts; buyers should sample it before pricing.
8. Fourteen mistakes
- Declaring from revaluation gains, notional profits, or any reserve that is not a free reserve.
- Skipping the set-off of previous years' losses and unabsorbed depreciation before computing distributable profit.
- Running the dry-year route without Rule 3's three locks — the rate cap, the one-tenth drawal cap, and the 15% residue floor.
- Declaring any dividend while a deposit-repayment default subsists — Section 123(6) is an absolute bar.
- Missing the 5-day deposit into the separate scheduled-bank account — the default that begins before payment is even late.
- Treating an interim declaration as revocable when the year turns — declaration creates the debt, for interim and final alike.
- Letting members "improve" the Board's recommended final rate — they may reduce it, never increase it.
- Paying past day 30 on cash-flow grounds — not one of Section 127's defences, and the directors' exposure is personal.
- Missing the 7-day transfer to the Unpaid Dividend Account, or the 90-day website statement — each with its own consequence, including 12% interest.
- Withholding at a blended guess — no PAN census, no 15G/15H collection, no treaty file for non-residents — and reconciling at the company's cost later.
- Remitting to the foreign parent without the TRC, Form 10F and 15CA/15CB pack — the treaty rate is claimed with documents, not assumed.
- Ignoring the seven-year cliffs — until the shares themselves leave for the IEPF and a Form IEPF-5 claim becomes the shareholder's only road home.
- Letting the dividend account leak — sweeps or "temporary" borrowings from the separate account destroy the one reconciliation that protects everyone.
- Sitting on IEPF-5 verification reports — the former shareholder's claim becomes the company's default when the verification window lapses.
9. Checklist
Before declaring
- Source computation on audited numbers — depreciation provided, losses set off, free-reserves test passed (dry-year locks where applicable)
- No subsisting deposit default; interim brake checked where there is a preceding-quarter loss
- Shareholder tax census done — PANs, residency, 15G/15H, treaty files
- Cash for the full payout — plus TDS — confirmed available within 30 days
Declaration to payment
- Resolution passed (Board — interim; AGM — final, at or below the recommended rate)
- Separate scheduled-bank account funded within 5 days
- TDS deducted line by line; deposited by the 7th of the following month; 16A issued
- Payment completed within 30 days; foreign-parent remittance on the 15CA/15CB pack
After day 30
- Residue to the Unpaid Dividend Account within 7 days; website statement within 90
- Unpaid registers reconciled annually; reminder campaign ahead of each 7-year cliff
- 7-year amounts — and qualifying shares — transferred to the IEPF with the prescribed statements
- The whole trail filed: resolutions, computations, TDS proofs, remittance packs
10. Frequently asked questions
Q1. Out of what may a company declare dividend?
Current-year profits after depreciation, accumulated profits of previous years transferred to free reserves (on the dry-year conditions where current profits are inadequate), or government-provided money under a guarantee — and only out of free reserves, never revaluation or notional gains.
Q2. Must profits be transferred to reserves before declaring?
No — the mandatory percentage transfer of the 1956 Act is gone. The company may transfer such percentage as it considers appropriate, including nothing, before declaration.
Q3. What is the dry-year rule?
Rule 3's three locks for declaring out of accumulated reserves in a year of absent or inadequate profits: rate not above the three-year average (unless no dividend was declared in each of those years), drawal capped at one-tenth of paid-up capital plus free reserves with current losses set off first, and residual reserves of at least 15% of paid-up capital.
Q4. Who declares interim and final dividends?
The Board declares interim dividends from surplus and year-to-date profits; the members declare the final dividend at the AGM by ordinary resolution — at or below, never above, the Board's recommended rate.
Q5. Can an interim dividend be revoked if the year turns bad?
No. Declaration creates a debt for interim and final alike — the 5-day deposit, 30-day payment and Section 127 consequences follow regardless. The safeguard is the brake before declaration: with a loss up to the preceding quarter, the interim rate cannot exceed the three-year average.
Q6. What are the payment timelines?
Deposit the full amount in a separate scheduled-bank account within 5 days of declaration; pay shareholders within 30 days; move the residue to the Unpaid Dividend Account within 7 days thereafter; publish the website statement within 90 days of that transfer.
Q7. What happens if payment slips past 30 days?
Section 127: the company owes simple interest at 18% per annum for the default period, and every director knowingly party to the default faces imprisonment up to two years and a fine of at least ₹1,000 per day. Cash-flow difficulty is not among the statutory defences.
Q8. What defences does Section 127 allow?
Non-payment by operation of law; inability to follow the shareholder's communicated instructions; lawful adjustment against sums due from the shareholder; a genuine dispute over the right to receive; and default not attributable to the company. The list is exhaustive and read narrowly.
Q9. In what form may dividend be paid?
Cash — by cheque, warrant or electronic mode — to the registered shareholder or their order. Dividend in kind is not permitted; capitalising profits as fully paid bonus shares is a different, lawful machine under Section 63.
Q10. Can a company with a deposit default declare dividend?
No — Section 123(6) bars any declaration while a failure to repay deposits or deposit interest under Sections 73–74 subsists.
Q11. What is the TDS position for resident shareholders?
Section 194: 10% where the shareholder's aggregate dividend from the company exceeds ₹10,000 in the financial year (threshold raised from ₹5,000 by Budget 2025, effective FY 2025-26); nil below it; 20% without a valid PAN; and nil against Form 15G/15H for eligible individuals.
Q12. And for the foreign parent or other non-residents?
Withholding under Section 195 at the Section 115A rate — 20% plus surcharge and cess — or the lower treaty rate (commonly 5–15%) against a Tax Residency Certificate, electronic Form 10F and beneficial-ownership comfort, with the remittance documented on Forms 15CA/15CB.
Q13. When is the TDS deposited?
Deducted at credit or payment, whichever is earlier; deposited by the 7th of the following month; reported in the quarterly TDS return with Form 16A to shareholders. A shortfall is the company's liability with interest, whatever the shareholder's own tax position.
Q14. Is RBI approval needed to remit dividend to a foreign shareholder?
No — dividend is a current-account transaction, freely remittable through the AD bank once declared and taxed, on the KYC and 15CA/15CB documentation. The planning lives in the treaty file and the calendar, not in any approval queue.
Q15. Why is dividend called the repatriation workhorse for foreign-owned subsidiaries?
Because the exchange-control framework offers no ordinary route for the subsidiary to lend surplus upward to its parent — so lawful repatriation runs through dividends (the annual pipe), buy-backs and capital reduction. A planned dividend calendar is what keeps treasuries from asking for the unlawful alternative.
Q16. What is deemed dividend under Section 2(22)(e)?
The income-tax rule that treats loans and advances by a closely-held company to substantial shareholders — or entities they control — as taxable dividend to the extent of accumulated profits. It is the tax shadow over every "advance to the parent" shortcut, on top of the company-law and FEMA problems such transfers carry.
Q17. What is the Unpaid Dividend Account?
The dedicated account into which everything unpaid or unclaimed after the 30-day window moves, within 7 days — with 12% p.a. interest accruing for shareholders on any delayed transfer, and a public website statement of the unpaid amounts within 90 days.
Q18. When do unclaimed amounts reach the IEPF?
Seven years after the transfer to the Unpaid Dividend Account, the amount moves to the Investor Education and Protection Fund within 30 days — with the prescribed statements identifying every amount and holder.
Q19. Do the shares themselves really go to the IEPF?
Yes — Section 124(6): where dividends on shares remain unclaimed for seven consecutive years, the shares are transferred to the IEPF. One dividend claimed anywhere in the chain saves them — which is why reminder campaigns before each cliff matter.
Q20. How does a shareholder recover from the IEPF?
By an online claim to the IEPF Authority in Form IEPF-5, verified through the company, with the entitlement documents — a months-long process that ends in a refund of the money and re-crediting of transferred shares to the claimant's demat account.
Q21. Who is entitled to the dividend — buyer or seller of shares in transit?
The person on the register of members on the record date (or the first-named joint holder / the transferee once registered). Private-company share transfers around a declaration should settle the entitlement expressly in the transfer paperwork.
Q22. Can dividend be adjusted against money the shareholder owes the company?
Lawful adjustment against sums due from the shareholder is one of Section 127's recognised situations — documented set-off, communicated to the holder. It is a defence to be papered, not an informal ledger habit.
Q23. Is there still dividend distribution tax?
No — DDT was abolished from April 2020. Dividends are taxed in shareholders' hands at their applicable rates (slab rates for resident individuals; 115A or treaty rates for non-residents), with the company withholding at source.
Q24. Does declaring dividend need any ROC filing?
No dedicated e-form marks a declaration — but the resolutions live in the minutes (MGT-14 where a special resolution is somehow involved), the financial statements disclose the dividend, and the unpaid/IEPF machinery has its own statements. The audit trail is the filing.
Q25. Can a company declare multiple interim dividends in a year?
Yes — the Board may declare interim dividends more than once during the financial year, each on its own source computation and each starting its own 5-day and 30-day clocks.
Q26. What about preference shareholders?
Their fixed-rate entitlement ranks ahead of equity — no equity dividend can be paid while preference dividend for the period is unpaid — and cumulative preference arrears accumulate. The same declaration, payment and unpaid-account machinery applies to their payout.
Q27. Our subsidiary has only two shareholders — does the IEPF machinery matter?
Practically, the risk sits with legacy Indian shareholders from pre-acquisition history rather than the parent and its nominee. Find and settle those holdings early — the seven-year cliffs run whether the register has two names or two thousand.
Q28. Can members waive their dividend?
A shareholder may waive or forgo a declared dividend by clear instrument before payment — their individual right. What no one can do is un-declare the dividend for everyone else; the company's obligations to non-waiving holders run unchanged.
Q29. How does the dividend interact with buy-backs and capital reduction?
They are the other two items on the lawful repatriation menu: buy-back under Section 68 for larger episodic returns (with buy-back tax and ratio limits), capital reduction under Section 66 for structural returns under Tribunal supervision. Which fits is a joint tax-and-corporate analysis, made before the surplus becomes urgent.
Q30. What should the board pack for a dividend resolution contain?
The source computation on audited figures (with the dry-year locks where used), the depreciation and loss set-offs, cash-flow confirmation for the payout window, the TDS census summary, the remittance plan for foreign holders, and the record-date logistics. The resolution should be the conclusion of that pack, not a substitute for it.
Q31. Is late TDS deposit a company-law problem too?
The interest, fees and disallowance live in the income-tax machinery — but a pattern of withholding failures surfaces in audits and diligence beside the Section 127 record, and both read as the same finding: a payout process run without controls.
Q32. What is the nodal officer for IEPF?
A director designated to the IEPF Authority (with deputies) to verify claims and coordinate transfers, with details published on the company's website. Every Form IEPF-5 claim routes through the company for a verification report within the prescribed period — an obligation, not a courtesy.
Q33. Can money in the separate dividend account be used temporarily by the company?
No — the account exists to ring-fence the payout, and its only lawful destinations are payments to shareholders and the Unpaid Dividend Account. "Temporary" borrowings from it break the reconciliation that protects the directors and invite exactly the scrutiny the account was designed to prevent.
Q34. The 30 days have already passed and shareholders are unpaid — what now?
Pay immediately — borrowed if necessary — with the 18% interest computed and settled; complete the unpaid-account transfer and website statement; minute the causes against Section 127's actual defences where any apply; and rebuild the calendar so the next declaration is made only against confirmed cash. Delay compounds personal exposure by the day; payment stops it.
Corporate — related reading
Talk to us before the thirty days run
Delhi Legal Company runs the dividend cycle end to end for Indian companies and foreign-owned subsidiaries — source computations and dry-year testing, board and AGM documentation, the shareholder tax census with TDS line-mapping, treaty files and 15CA/15CB packs for parent remittances, unpaid-account and IEPF compliance including IEPF-5 recoveries, and repatriation calendars that make the lawful route the convenient one.
How we usually start. Send us the latest audited balance sheet, the shareholder list with tax status, and what the group wants to move this year. We come back with the distributable computation, the withholding line by line, the remittance pack, and a declaration-to-payment calendar that clears every clock in this article.