In the budget speech of 2016, Hon. Finance Minister introduced an additional 10% tax on dividend income once it exceeds Rs. 10 Lakhs. Majority of the companies have significant promoter holding, which means that Dividend income is a big source of income to these promoters. Currently, dividends are not taxed as only Dividend Distribution Tax is paid upfront by the company disbursing the same.
With this new, a lot of companies have rushed to announce dividends. Even PSUs have rushed to announce their dividends, which means the primary promoter which in this case is Government will stand to benefit significantly from these steps.
To share a perspective, I am capturing the list of dividends received or receivable in my
Going forward, one can expect that the dividends will be low due to the proposed taxation. The cash which used to be disbursed as Dividends will now reflect in the P/L statements. Would this translate into additional Bonus shares OR would companies consider buying out the shares? As an investor, I definitely hope that the companies continue to reward their stockholders through dividends. Pragmatically, I know I can expect lower numbers going forward, but I sincerely hope that they don’t stop giving dividends all together.
For now, invest the surplus wisely…