{"id":10331,"date":"2022-09-28T17:21:23","date_gmt":"2022-09-28T11:51:23","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=10331"},"modified":"2022-09-28T17:21:28","modified_gmt":"2022-09-28T11:51:28","slug":"interim-dividend-meaning-and-taxation","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/","title":{"rendered":"Interim Dividend: Meaning and Taxation"},"content":{"rendered":"\n<p>When you <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> shares, you can earn in two ways &#8211; dividends and capital appreciation. The <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a> declared by companies is a way of distributing its profits to the owners viz <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a>. There are two types of dividends. In this article, we\u2019ll discuss what is an interim dividend, the final dividend, when they are paid, and how they are funded.&nbsp;&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#What-is-a-dividend\" title=\"What is a dividend?\">What is a dividend?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Interim-dividend-meaning\" title=\"Interim dividend meaning\">Interim dividend meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Interim-dividend-example\" title=\"Interim dividend example\">Interim dividend example<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#How-is-an-interim-dividend-taxed\" title=\"How is an interim dividend taxed?\">How is an interim dividend taxed?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#When-does-a-company-pay-dividends\" title=\"When does a company pay dividends?\">When does a company pay dividends?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Final-dividend\" title=\"Final dividend\">Final dividend<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Is-a-company-mandated-to-pay-dividends\" title=\"Is a company mandated to pay dividends?\">Is a company mandated to pay dividends?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Difference-between-interim-dividend-and-final-dividend\" title=\"Difference between interim dividend and final dividend\">Difference between interim dividend and final dividend<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#How-does-a-company-fund-the-final-dividend\" title=\"How does a company fund the final dividend?\">How does a company fund the final dividend?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#How-is-an-interim-dividend-funded\" title=\"How is an interim dividend funded?\">How is an interim dividend funded?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Is-a-company-mandated-to-pay-dividends-every-year\" title=\"Is a company mandated to pay dividends every year?\">Is a company mandated to pay dividends every year?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Are-all-shareholders-eligible-to-receive-dividends\" title=\"Are all shareholders eligible to receive dividends?\">Are all shareholders eligible to receive dividends?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Does-non-payment-of-dividends-make-a-company-bad\" title=\"Does non-payment of dividends make a company bad?\">Does non-payment of dividends make a company bad?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.tickertape.in\/blog\/interim-dividend-meaning-and-taxation\/#Is-the-interim-dividend-declared-by-Indian-companies-taxable\" title=\"Is the interim dividend declared by Indian companies taxable?\">Is the interim dividend declared by Indian companies taxable?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-is-a-dividend\"><\/span><strong>What is a dividend?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When a company raises capital through equity, it can pay dividends to the shareholders. A dividend is a liability to the company but an income to the shareholders receiving it. A company is not mandated to pay dividends by law. However, when a corporation earns a profit, it has an option to pay a portion of it as a dividend to shareholders.<\/p>\n\n\n\n<p>A dividend is generally calculated as a percentage of profit and distributed to shareholders on a per-share basis. The portion of profits not distributed as dividends is considered to be reinvested in the business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Interim-dividend-meaning\"><\/span><strong>Interim dividend meaning<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An interim dividend is a dividend paid before a company&#8217;s Annual General Meeting (AGM) and the release of its final financial statements. This dividend is usually accompanied by the company&#8217;s interim financial statements. It can be paid out monthly, quarterly or semi-annually, along with the release of the relevant periodic\/interim financial statements.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Interim-dividend-example\"><\/span><strong>Interim dividend example<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Company A proposed a dividend on 1st July 2022 after releasing its Q2 results. The shareholders approved it and set a rate of 5% per equity share having a face value of Rs. 5. Thus, the interim dividend is Rs. 0.25 per share. The company also set a dividend record date of 31st July 2022 for the payment. This means that only the individuals registered as the equity shareholders of the company as on 31st July 2022 would be eligible to receive this dividend.<\/p>\n\n\n\n<p>Since the dividend declared is in the middle of the fiscal before declaring the audited final financial statements for the year and the AGM, it qualifies as an interim dividend.<\/p>\n\n\n\n<p>Read about other <a href=\"https:\/\/www.tickertape.in\/blog\/read-this-before-investing-in-majesco-ltd-for-its-dividends\/#Relevant-dates-of-dividend-declaration\">important dates relating to dividend declaration and payment and their impact on the stock price<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How-is-an-interim-dividend-taxed\"><\/span><strong>How is an interim dividend taxed?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An interim dividend is taxed on a receipt basis. In simple words, it is taxable in the previous year in which you receive it.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When-does-a-company-pay-dividends\"><\/span><strong>When does a company pay dividends?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company can pay dividends twice a year. Once before its AGM and the next after the AGM. As discussed previously, this is the interim dividend.<\/p>\n\n\n\n<p>The AGM is a shareholders\u2019 meeting that a company conducts each year. During this meeting, it presents the audited financial statements of the last financial year to its equity shareholders. At the same time, the dividend is recommended by the company\u2019s board of directors. Although the dividend is declared by the company&#8217;s board of directors, the shareholders give the final approval on its disbursal.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/ttape.in\/M2rZ6AOXhtb\" target=\"_blank\" rel=\"noopener nofollow\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"393\" src=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/09\/Navratri-BANNER-creative-04-1-1024x393.png\" alt=\"\" class=\"wp-image-10338\" srcset=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/09\/Navratri-BANNER-creative-04-1-1024x393.png 1024w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/09\/Navratri-BANNER-creative-04-1-300x115.png 300w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/09\/Navratri-BANNER-creative-04-1-1536x589.png 1536w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Final-dividend\"><\/span><strong>Final dividend<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The dividend that a company proposes at its AGM after presenting its audited financial statements for the latest completed fiscal is called the final dividend.<\/p>\n\n\n\n<p>Generally, the interim dividend is the lower of the two dividends paid to shareholders. A company can choose to pay both interim and final dividends in cash and stock.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is-a-company-mandated-to-pay-dividends\"><\/span><strong>Is a company mandated to pay dividends?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>No. The law doesn\u2019t require a company to pay dividends to its shareholders compulsorily. Companies can choose to distribute their profits as dividends annually, while others may choose not to distribute at all.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference-between-interim-dividend-and-final-dividend\"><\/span><strong>Difference between interim dividend and final dividend<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The dividend payment time is not the only difference between interim and final dividends. Here are the other factors that distinguish interim and final dividends:<\/p>\n\n\n\n<ol><li><strong>Declaration and approval:<\/strong> In case of the final dividend, the company&#8217;s board of directors propose the idea of paying the dividend, but the shareholders approve the disbursal after voting on the issue. On the contrary, an interim dividend is recommended, voted on, and approved by the company\u2019s board of directors. Although the shareholders don&#8217;t approve the disbursal, they have the right to challenge the board&#8217;s decision and refuse the interim dividend payment.<\/li><li><strong>Funding<\/strong>: The final dividend is paid from a company&#8217;s current year net profit; however, the interim dividend is paid out of its retained reserves.<\/li><\/ol>\n\n\n\n<p>Dividends give you an additional source of income. But not all companies offer a dividend. If you wish to <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-the-stock-market-beginners-guide\/\">invest in stocks<\/a> that offer dividends, read: <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-find-dividend-stocks-using-screener\/\">Explained: How To Identify High Dividend Yielding Stocks Using Stock Screener<\/a>.<\/p>\n\n\n\n<p>Be informed that non-payment of dividends doesn&#8217;t necessarily make a stock unworthy of investing. Many companies plough back their profits and reinvest them in operations and expansion plans. If the company is able to grow by doing this instead of distributing them as dividends, you, as a shareholder, would stand to benefit from it ultimately.<\/p>\n\n\n\n<p>However, if earning dividends is your primary objective of stock investing, then you may use <a href=\"https:\/\/ttape.in\/tx3X27AHwtb\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">Tickertape\u2019s Stock Screener<\/a> to filter such stocks. Be sure to evaluate the company based on other important parameters as well. Not every company that offers dividends could be fundamentally strong. Read <a href=\"https:\/\/www.tickertape.in\/blog\/read-this-before-investing-in-majesco-ltd-for-its-dividends\/\">Majesco Limited Dividends: About, Sources of Dividends and Important Dates<\/a> to know why.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span><strong>FAQs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1663831419396\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"How-does-a-company-fund-the-final-dividend\"><\/span><strong>How does a company fund the final dividend?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Since the final dividend is declared after the final financial statements are released, the company pays it from the relevant financial year\u2019s net profit.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1663831425789\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"How-is-an-interim-dividend-funded\"><\/span><strong>How is an interim dividend funded?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>An interim dividend is paid from a company\u2019s retained earnings, a reserve of the profits of the previous financial years. The company is not mandated to pay interim dividends every year.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1663831434487\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"Is-a-company-mandated-to-pay-dividends-every-year\"><\/span><strong>Is a company mandated to pay dividends every year?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>No. A company is not mandated to pay dividends to its shareholders every year. The company is free to declare both interim and final dividends in a particular year and pay either of them or neither at all. The payment of dividends is completely at the company\u2019s discretion.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1663831447389\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"Are-all-shareholders-eligible-to-receive-dividends\"><\/span><strong>Are all shareholders eligible to receive dividends?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>No, not all shareholders are eligible to receive dividends. Only an individual registered as a shareholder of the company as of the dividend record date is eligible to receive the dividend. So, if you are not a shareholder of the company as of the record date, you won\u2019t be eligible to receive the dividend.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1663831455466\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"Does-non-payment-of-dividends-make-a-company-bad\"><\/span><strong>Does non-payment of dividends make a company bad?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>No. Non-declaration of dividends doesn\u2019t make a company bad. A company can choose to reinvest its profits into the business instead of paying them as dividends. Evaluating a company based on important parameters should be the first step in identifying stocks, followed by its track record of paying dividends.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1663831468999\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"Is-the-interim-dividend-declared-by-Indian-companies-taxable\"><\/span><strong>Is the interim dividend declared by Indian companies taxable?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Yes. It is taxable in the hands of the taxpayer in the previous year of its receipt.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>A company can pay two types of dividends. An interim dividend is paid in the middle of a fiscal. Read more on what is an interim dividend, how it is funded, and how it is taxed.<\/p>\n","protected":false},"author":27,"featured_media":10396,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1721,1749],"tags":[],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/09\/22-Sep-22-An-explainer-on-interim-dividend.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/10331"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=10331"}],"version-history":[{"count":7,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/10331\/revisions"}],"predecessor-version":[{"id":10345,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/10331\/revisions\/10345"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/10396"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=10331"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=10331"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=10331"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}