Declaration and Payment of Dividend


Sl.No. Particulars As per Companies Act, 2013 As per Companies Act, 1956
1 Title 123 – Declaration of Dividend 205 – Dividend to be paid only out of profits

205A (3) – Unpaid dividend to be transferred to special dividend account

206 – Dividend not to be paid except to registered shareholders or to their order or to their bankers

124 – Unpaid Dividend Account 205A – Unpaid dividend to be transferred to special dividend  account

205B – Payment of unpaid or unclaimed dividend

125 – Investor Education and Protection Fund 205C – Establishment of Investor Education and Protection Fund
2 Transfer to Reserve Mandatory transfer to reserve is not required under Companies Act 2013. Companies are free to transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves. Compulsory transfer of profits to the reserves is required before declaration or payment of dividend at the following rates:-

Rate of proposed dividend % of  current profits to be transferred to Reserves
<10% Nil
10% – 12.5% 2.5%
12.5% – 15% 5%
15% – 20% 7.5%
3 Interim Dividend Interim dividend can be declared during any financial year out of the surplus in the profit and loss account and out of  profits of the financial year in which the same is sought to be declared. Provided that in case the company incurs loss during the current financial year, upto the end of the quarter immediately preceding the date of declaration of interim dividend, then the interim dividend cannot be declared by the company at a rate higher than the average dividends declared during the immediately preceding three financial years All the provisions applicable to final dividend are equally applicable to interim dividend
4 Restriction on declaration of Dividend A company cannot declare dividend if the company fails to comply with acceptance of deposits and repayment of deposits accepted prior to the commencement of this Act.(section 73 & 74 of Companies Act 2013) A company cannot declare dividend if it fails to redeem its preference shares as per the provisions of Section 80A of Companies Act 1956.
5 Mode of Payment Dividend payable in cash can be paid by cheque or warrant or in any electronic mode. Dividend payable in cash can be paid by cheque or warrant only.
6 Transfer of shares to Investor Education and Protection Fund Not only unpaid or unclaimed dividend but also shares in respect of which the dividend is unpaid or unclaimed can also be transferred to IEPF along with a statement containing such details. Only unpaid or unclaimed dividend can be transferred to IEPF
7 Payment of dividend out of free reserves No dividend shall be paid from its reserves other than free reserves. The term “Free Reserves” is defined under Section 2 (43) of the Company Act 2013 Dividend shall be paid out of “Reserves”(Profits of the company for the year for which dividends are to be paid, Undistributed profits of the previous financial years & Moneys provided by the Central Government or a State Government for the payment of dividends in pursuance of a guarantee by the Government concerned)
8 Power of central government to permit declaration of dividend without providing depreciation There is no such provision The proviso (c) of Section 205(1) of the 1956 Act empowers the Central Government to waive in any particular case, the requirement of providing for depreciation.


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