It Was A Dividend Double Dhamaka By India Inc. Before The Coronavirus

So far this year, 24 entities constituent companies of the benchmark NSE Nifty 50 Index have announced interim dividends. Last year, just 15 paid interim dividends in the January-March period. Earnings growth, at a dismal 6 percent as of the third-quarter, gets no credit for that. Two other reasons do.

One—Finance Minister Nirmala Sitharaman’s Budget 2020 move to eliminate the 15 percent Dividend Distribution Tax paid by companies on their dividend payout, and instead tax the dividend income in the hands of shareholders, at income tax rates applicable to each. High net worth shareholders, that fall into the 30 percent income tax bracket, will effectively pay more tax on such dividend income next fiscal onwards.

Second—The major bonanza corporate India got back in August, when the government cut the corporate tax rate from 30 percent to 22, for companies willing to give up their tax exemptions.

Together, the two amounted to shareholders being paid larger dividends, and that too, faster.

Companies That Announced Interim Dividends

On analysing stock exchange filings of Nifty 50 companies, BloombergQuint found that 24 companies announced interim dividend between January and now—of which 22 made their announcements after the Feb. 1 budget.

Ordinarily, a dividend is declared and paid after the financial year is over, an interim dividend is declared and paid before the financial year ends.

• Of the 22 companies that declared a dividend after Feb 1. budget, 12 paid an interim dividend in FY19 as well.
• All but two (of those 12) raised the dividend payout. ONGC and NTPC paid lower dividends compared to the previous year.
• Three of them, IT majors Tata Consultancy Services Ltd., Wipro Ltd. and HCL Technologies Ltd. announced an interim dividend before the Feb. 1 budget.
• TCS announced two interim dividends between January to March 2020, one pre-budget and other post-budget.
• Infosys Ltd., which declared an interim dividend in the previous fiscal, has not yet declared a dividend for this quarter.

Ten of the 22 companies did not pay an interim dividend in FY19.

Except Larsen & Toubro Ltd. and Tech Mahindra Ltd., the other eight companies are promoter family-backed.

This year’s payout will help their promoters attract a lower effective tax rate on the income than once the budget provision comes into effect.

Seven of these companies have announced an interim dividend payout that exceeds last year’s final dividend.

Companies Passing On Tax Savings Via Higher Dividend Payout

Twenty-seven of the 50 Nifty companies have opted for the lower corporate tax regime announced in August 2019. Under that, corporates have an irreversible option to pay tax at a lower rate of 22 percent compared with the earlier 30 percent, provided they give up on exemptions and allowance available under the old tax regime. These rates are headline rates and do not include surcharge and cess.

As per BloombergQuint calculations, these 27 entities saved Rs 4,898 crore in taxes in the third quarter of the financial year 2019-20. They incurred tax expense of 26 percent of the profit before tax in the third quarter of 2019-20 compared with 31.8 percent in the same quarter, a year back.

Eight of the 27 companies that opted for lower tax rate passed on the savings in the form of higher interim dividends during January-March 2020 compared to what they paid a year earlier.

Except for Wipro, all announced interim dividend post Feb. 1.