Tax FREE

Dividends are a way companies shares their profits with share holders, This is direct credit of cash into share holder's bank account . Companies are not bound or mandated to declare dividends .Companies can very well decide not to declare dividends and decide to use that cash to grow their business.

It has been usually found that companies that already have huge cash reserves and not finding avenues to deploy them profitably are better off declaring dividends

Dividend are usually declared as a % of the face value , for example a company with shares of face value of Rs.2 , when declares a dividend of 50% means it is going to pay an amount of Rs.1 for every share held by the share holder

For share holders dividend are a source of Tax free income . Dividends declared by companies as well as Equity Mutual Funds are all tax free in the hands of the share holders .

Lets take the case of Mr. Azim Pemji of Wipro , Premji holds significant stake in Wipro ( In excess of 50%) and last year received nothing less than Rs.500 crores as dividend income ,this income is completely tax free and Premji has been receiving such dividends amounts for many years now . Premji has taken stakes in other companies using these tax free income , sure these other companies add significant tax free income to Premji's kitty.

As Investors, our aim must not only be to generate multiple sources of income , but also see to it that these are generated tax efficiently .

Image : FreeDigitalPhotos.net,Photographer: Arvind Balaraman