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Corporates making haste on interim dividend to beat tax hike
March, 03rd 2007
To avoid attracting additional tax burden

Dividend issue
Last time such a scramble had taken place was in 2002-03
A similar development is seen on the ESOPs front

In order to avoid the higher dividend distribution tax announced in the Budget, companies are planning to go in for an interim dividend.

More than a dozen companies including Reliance Industries, IPCL, Nalco, Wockhardt and Sun Pharma, have called for board meetings to decide on issuing an interim dividend.

The Budget had increased the dividend distribution tax (DDT) from 12.5 to 15 per cent and analysts had expected India Inc to scurry and announce interim dividends by April 1, when the proposal would come into effect. By announcing a dividend during the current financial year, companies would not attract the additional tax burden.

A similar development was seen on the ESOPs (Employees Stock Option) front as well, with a clutch of companies, including ICICI Bank, Patni, NIIT and Kotak Mahindra, going in for ESOPs. The Union Finance Minister, Mr P. Chidambaram, had announced that ESOPs would be brought under the purview of fringe benefit tax.

Boards of three Reliance group companies RIL, IPCL and Reliance Infrastructure would meet on March 10, to consider an interim dividend, the company told the Bombay Stock Exchange. Nalco's board will be meeting on March 9.

An analyst points out that the last time such a scramble took place was when DDT was introduced in 2002-03. More than 200 companies had rushed in to announce interim dividends, as the proposal was to come into effect in June. Eventually, the Ministry of Finance stepped in to stem the scramble, he recounts.

But this time around, the Finance Ministry has not given companies the liberty of time, as the proposal comes into effect from April 1. As a result, some market watchers said that companies might find it difficult to meet the deadline as they needed to inform to the bourses.

Some of the other companies that have called for board meetings to discuss the interim dividend issue include Nirma, Zandu Pharmaceuticals, FDC, Patel Engineering and Godawari Power.

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