THE RELEVANCE OF DIVIDEND POLICY TO THE VALUE OF THE FIRM : A CASE OF THE FMCG SECTOR IN INDIA

Abstract

In late February 2020, companies in the Indian corporate sector rushed to declare dividends in bid to beat the dawn of the 2020/21 budget year, in which the Dividend Distribution Tax (DDT) on Indian companies would be abolished. Previously, dividends were taxed at the corporation level. The direct recipients of the dividends income, which are the sharegolders were not required to pay any tax on dividend from domestic companies up to Rs. 10 lakh, after which they would be taxed at a rate of 10 percent. The new policy is seen as compounding the tax burden on shareholders, especially those who are at a higher tax bracket as they may effectively pay as much as 43 percent. Consequently, the rush by the corporations was seen as a response to these changes.