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Dividend tax payable if dividend forgone

Swagata (Service) (41 Points)

20 June 2009

In case promoters forgo right to dividend, would dividend tax still need to be paid on that amount?

Also, would that dividend need to be provided for in the 1st place? If yes, what entry do you pass for reversing it next year when teh promoters forgo it?

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5 Replies

Sanjeev Jain (Chartered Accountant) (922 Points)
Replied 22 June 2009

Hie,

See once dividend has been approved by the shareholders in the AGM it beomes payable within the time period allowed according to Section 205 of the Company Act, 1956 & when it has been approved, Liability to pay Corporate Dividend Tax come upfront and assessee company will have to pay CDT on the same according to sec 115O of Income Tax Act, 1961 @ 15% plus Surcharge plus education Cess.

It is irrelevant to note whether CDt will be paid if promoter group has forgo their right to receive dividend.

It will be provided in the 1st Place with the entire amount of dividend declared

If it is not paid within the time period then it will have to be transferred to the Unpaid dividend A/c of ..................... (name of Co.) within next 30 days from the expiry of aforesaid period. if any adjustment is required to be done with the promoter group then you can settle the amount of Dividend with the piability of that group.

Entries in this case will be: -

01. AT the time of Declaring dividend: -

P & L A/c ................ Dr.

To Dividend Payable

02. At the time of Dividend payable: -

Dividend Payable A/c ............... Dr.

To Shareholders A/c

03. AT the time of Settlement

Liability A/c ................................Dr

To Shareholder A/c (Promoter Group).

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Swagata (Service) (41 Points)
Replied 22 June 2009

Originally posted by :CA. Sanjeev Jain

I dont think this is correct... let me clarify teh sequence... in the accounts on 31st march, the total dividend and tax thereon is provided. In July, the promoters declare their intention to forgo the dividend. Then at the AGM, dividend is declared but is actually payable only to the promoters. In that case is dividend tax to be deposited only on the amount finally paid out on dividend and the balance dividend and tax thereon is written back to the P&L account the nexy year... I think that would be teh correct option.

Any suggestions, anyone?

Sanjeev Jain (Chartered Accountant) (922 Points)
Replied 22 June 2009

As you stated in your reply that promoter has decided to forgo their dividend in the m/o july but in ensuring AGM dividend is declared and only payable to promoter group. clarrify one thing that whether the promoter group hold the entire shareholding of the company or hold the entire single class of shares in the comapny because it is not possible for the compnay to declare dividend only for promoter group.

As far as your second query is concerned Dividend tax is to be paid on the amount of divided actually payable by the company and in the event of excess booking of proposed dividend, the same will be written back through profit and Loss account which shall be appeared below the line.

Swagata (Service) (41 Points)
Replied 22 June 2009

Originally posted by :CA. Sanjeev Jain
"	No its the other way round.... accounted for 100% dividend and tax on 31st march. Then promoters, holding 60% shares, forgo the dividend. So dividend actually paid out to 30% public shareholders. So tax would only be deposited on the 40% payout amt, right? In the next year, dividend amount pertaining to promoters and the relevant tax would be written back, below the line...correct?.	"

Sanjeev Jain (Chartered Accountant) (922 Points)
Replied 22 June 2009

See basically it is not clear How much amount of dividend or how much % is declared in AGM if it is what you convey to me then what u r saying is perfectlly corect that you will have to written back the amount of dividend alongwith tax thereon to the extent of 60% through next P&L A/c & the rest will be paid according to the provison of Law in the current financial yr.