And paying dividend explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Once the amount available is settled, the next questions are who declares the dividend, who is entitled to it, when it must reach the shareholder and how. Paragraphs 2 to 5 of SS-3 follow the dividend from the Board's recommendation to the shareholder's bank account or warrant. A compliance advisory calendar keeps the Board, the AGM and the bank dates in step.
SS-3, effective from 1 January 2018 (recommendatory), is not approved under section 118(10); a company adopts it as good practice. ICSI may revise the Standards, so check the current version on icsi.edu. If a later change in the Act or other law makes any part of SS-3 inconsistent, the Act and the law in force prevail. For tax on dividend, see our income-tax guides.
Final dividend is declared by members at the AGM on the Board's recommendation, and members can lower it but not increase it. Interim dividend is declared by the Board at a meeting. The money goes into a separate bank account within five days of declaration and is paid within thirty days. Payment is in cash, never in kind, preferably electronically. A warrant is valid for three months. Dividend on shares with a disputed or unregistered transfer goes to the Unpaid Dividend Account.
Paragraph 2: declaration
| Para | Requirement |
|---|---|
| 2.1 | Dividend is declared only on the Board's recommendation made at a Board meeting. Members at the AGM cannot declare it on their own. An Audit Committee, if any, first considers the annual financial statements, and the Board recommends dividend after approving them. Dividend is not declared subject to a condition, such as approval of banks, financial institutions or foreign collaborators, or any contractual obligation |
| 2.2 | Final dividend is declared only at an AGM, for a financial year, after adopting the financial statements. Members may declare a lower rate than recommended, but have no power to increase it, and may decide not to declare it. Dividend is disclosed on a per-share basis |
| 2.3 | No dividend on equity shares is declared for earlier years whose accounts have already been adopted. Arrears on cumulative preference shares may still be declared and paid |
| 2.4 | Interim dividend is declared at a Board meeting; member approval is not needed. The Audit Committee, if any, first considers the financial results |
| 2.5 | Distributing discount coupons to all shareholders is not deemed dividend |
| 2.6 | A company cannot issue bonus shares in lieu of dividend |
The related declaration rules in the Act are explained in section 123 on dividend.
Paragraph 3: entitlement
- 3.1 Registered holders. Dividend is paid only to registered holders or to their order or bankers. For shares in electronic form, it goes to beneficial owners shown in the depository statement as on the record date; for physical shares, to the members in the register after giving effect to valid transfers lodged before book closure or the record date.
- 3.2 Preference shareholders are paid before equity shareholders, according to the terms of issue and subject to distributable profits. Where there are several classes, the class with priority is paid first if the terms say so; otherwise pro rata. For interim dividend, preference shareholders need not necessarily be paid first, but the Board takes into account the sum needed to pay them.
- 3.3 Arrears on cumulative preference shares are paid before any equity dividend. Non-cumulative shares carry no right to a missed year's dividend. Participating preference shares share in the residual profit as per their terms.
- 3.4 Equity classes are paid in accordance with their respective rights, including differential rights fixed on issue.
For the preference share position see our note on dividend on preference shares.
Paragraph 4: dividend in abeyance
Where an instrument of transfer has been delivered but the transfer is not registered for a valid reason, the dividend goes to the Unpaid Dividend Account. Members may authorise the company in writing to pay the transferee, and the company acts on it unless the instrument is invalid, in which case it tells the member. Where ownership is in dispute, or a court or statutory authority has passed a prohibitory order, dividend is kept in abeyance and transferred to the Unpaid Dividend Account when it becomes due. The account itself is covered in the article on paragraphs 6 to 10.
Paragraph 5: payment
| Para | Requirement |
|---|---|
| 5.1 | Dividend is deposited in a separate bank account within five days of declaration and paid within thirty days of declaration, counting intervening holidays. The money is used only for paying dividend or transfer to the Unpaid Dividend Account or the Investor Education and Protection Fund. The five-day deposit rule does not apply to a Government company wholly held by the Government(s) or another Government company |
| 5.2 | Taxes on distribution of dividend are paid within the prescribed time; see our income-tax guides |
| 5.3 | Dividend is paid in cash, not in kind, by payable-at-par cheque, warrant or an electronic mode approved by the Reserve Bank of India. The company endeavours to use electronic modes to curb fraudulent encashment and sends a written statement of the amount paid. Cheques or warrants go to the registered address (first-named holder for joint holders). If the amount exceeds one thousand and five hundred rupees, it goes by speed post or registered post. A Nidhi may announce small dividend (one hundred rupees or less) in a local newspaper and on its notice board for three months |
| 5.4 | A cheque or warrant is valid for three months. A fresh instrument is issued within fifteen days of a valid request, with the same validity, and entered in a Register of Dividend Warrants |
| 5.5 | A duplicate is issued only after indemnity or declaration and checking encashment status; defaced instruments are replaced on surrender; a Register of Duplicate Dividend Warrants is kept |
| 5.6 | Each payment carries a statement of amount, folio or DP ID and client ID, shares held on the record date, amount paid up per share and the financial year |
| 5.7 | Dividend is paid in proportion to the paid-up value and, unless the Articles say otherwise, the period of the year for which shares ranked |
| 5.8 | Calls in arrears and other sums due can be adjusted against dividend. In a listed company this is after the notice required; in others, other sums owed in a non-member capacity only if the Articles so provide |
| 5.9 | Dividend carries no interest, except for default in paying or despatching within the prescribed period. No default is deemed where payment is barred by law, instructions cannot be complied with, there is a dispute, lawful adjustment against dues, or the failure was not the company's default |
Paying dividend in kind or waiving dividend raises questions of its own; see dividend waiver and dividend in kind. The thirty-day outer limit is the Act's; see dividend declaration and the thirty-day rule.
A timeline for the Company Secretary
| Step | Timing |
|---|---|
| Board recommends final dividend after approving accounts | Before the AGM |
| Members declare at the AGM | Declaration date |
| Deposit in separate bank account | Within five days of declaration |
| Pay shareholders | Within thirty days of declaration |
| Reissue stale warrant | Within fifteen days of a valid request |
| Move unpaid sums | See paragraph 6 |
A worked example
Lakeview Foods Limited's Board recommends a final dividend of Rs 3 per share after the Audit Committee considers the accounts. At the AGM, members propose Rs 4. The Chairman rules that members cannot increase the Board's rate; they adopt Rs 3. Within five days the Company Secretary deposits the amount into a separate bank account, and shareholders with bank details on record are paid electronically within thirty days. One shareholder's transfer is disputed in a court, so his dividend is kept in abeyance and moved to the Unpaid Dividend Account. A warrant to another shareholder lapses after three months; the company issues a fresh one within fifteen days of his request.
Need help with dividend declaration and payment?
A missed deposit or payment date turns a routine dividend into a default. TaxClue's compliance advisory team can build the declaration-to-payment calendar and the warrant and unpaid-dividend registers for your company.
Key takeaways
- Final dividend is declared at the AGM on the Board's recommendation; members may reduce but not increase it.
- Interim dividend is declared by the Board and needs no member approval.
- Deposit in a separate bank account within five days; pay within thirty days.
- Pay in cash, preferably electronically; warrants are valid for three months.
- Disputed or unregistered transfers send dividend to the Unpaid Dividend Account.
Read next
- Paragraph 1 of SS-3: amount available for dividend
- Paragraphs 6 to 10 of SS-3: unpaid dividend and IEPF
- SS-3 on dividend: key requirements
- Dividend waiver and dividend in kind
Disclaimer: Based on the Secretarial Standards issued by the Institute of Company Secretaries of India (SS-1 and SS-2 as revised effective 1 April 2024; SS-3 effective 1 January 2018; SS-4 effective 1 October 2018), as consulted on 3 October 2026. ICSI revises the Standards from time to time; check the current versions on icsi.edu and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.