Board Resolution for Declaring Interim Dividend: Format and Section 123 Requirements

An interim dividend is declared by the board — not by shareholders — under s.123 CA 2013, payable out of current-year profits or free reserves. The board resolution must state the amount per share, record date and payment date; the company must deposit the dividend amount in a separate bank account within 5 days of declaration, deduct TDS u/s 194 ITA 1961, and pay within 30 days — otherwise s.127 CA 2013 makes the directors personally liable for the amount plus 18% interest.

What the law actually requires

Section 123(3) is the interim-dividend provision: the board may declare an interim dividend out of the surplus in the profit and loss account or out of profits of the financial year in which it is declared. The statutory conditions:

What the resolution must contain. A valid interim-dividend resolution specifies:

• Amount per share (e.g., ₹10 per equity share of face value ₹10).
• Record date — the date on which the register of members is closed; shareholders on that date are entitled to the dividend.
• Payment date — must be within 30 days of declaration.
• Source of the dividend (current-year profit / free reserves) and the authorising clause.

TDS u/s 194. The company must deduct TDS at 10% on dividend paid to a resident individual where the dividend in the year exceeds ₹5,000. The liability crystallises when the dividend is credited (on declaration/payment), and the TDS must be deposited with the government per the TDS deposit schedule — typically by the 7th of the month following the month of deduction (April's deduction by 30 April).

s.127 — the personal-liability trap. If a declared dividend is not paid within 30 days of declaration, every director who is knowingly a party to the default is punishable with imprisonment up to 2 years plus a fine, and is liable to pay simple interest at 18% per annum during the period of default. There is no "we forgot" defence.

Sample board resolution — interim dividend

RESOLVED that an interim dividend of ₹10/- per equity share (face value ₹10/-) for the financial year 2025-26 be and is hereby declared, out of the profits of the company for the said financial year / free reserves, payable to the members whose names appear in the Register of Members on the record date of 31 December 2025.

>

RESOLVED FURTHER that the payment of the said interim dividend shall be made on or before 15 January 2026, and that the amount of dividend be deposited in a separate account with [Bank Name] within 5 days of this resolution in accordance with s.123(4) of the Companies Act, 2013.

>

RESOLVED FURTHER that the Company Secretary / CFO be and is hereby authorised to deduct tax at source under s.194 of the Income Tax Act, 1961 and to take all steps necessary to give effect to this resolution.

Worked example: Skyline Retail Pvt Ltd

Skyline Retail Pvt Ltd has 10,00,000 equity shares of ₹10 each. At a board meeting on 15 December 2025, the board declares an interim dividend of ₹10 per share for FY 2025-26, out of current-year profits. Record date 31 December 2025; payment date 15 January 2026.

If Skyline fails to pay by 14 January 2026, s.127 applies: every director knowingly party to the default faces personal liability for the unpaid dividend plus 18% simple interest, and the imprisonment-and-fine penalty. The board minutes recording the declaration, the separate account, and the payment trail are the evidence that the company stayed inside the window.

Practical implications

• The board, not the AGM, declares interim dividends. Putting "interim dividend" to a shareholder vote is procedurally wrong; shareholders ratify the final dividend.
• Profit is a legal condition, not an accounting preference. Declaring an interim dividend without current-year profits or free reserves is unlawful; the dividend is then liable to be treated as a distribution not covered by s.123, with the board personally exposed.
• Record date vs payment date discipline. A record date after the financial year-end, or a payment date beyond 30 days, breaks the s.123/s.127 windows.
• TDS is not the dividend amount. The company deposits the net dividend to shareholders and the TDS to the government separately — and the s.194 TDS is creditable to the shareholder in their ITR.
• A dividend without a resolution is a recharacterisation risk. Under MCA21 v3, a distribution with no board resolution on record is open to being tested as deemed dividend (s.2(22)(e) ITA 1961) or an unauthorised payment — with TDS and personal-liability consequences.

Changed FY 2025-26: The statutory framework for interim dividends (s.123) is unchanged this year. What has changed is the audit trail: MCA21 v3 cross-references the dividend amount in AOC-4, the TDS in the quarterly returns, and the resolution on the board-meeting minutes — a declared dividend that does not reconcile across those three surfaces as a data mismatch.

Step-by-step: what to do

• Confirm the source. Verify current-year profit or free reserves before the meeting; keep the computation with the minutes.
• Draft the resolution with amount per share, record date, payment date, and the s.123(4) deposit direction. Use the board resolution picker to generate the format.
• Pass it at a properly convened board meeting (notice, quorum, minutes) and record the record date.
• Deposit the full dividend amount in a separate scheduled-bank account within 5 days.
• Deduct TDS u/s 194 at 10% on dividends above ₹5,000 per shareholder, deposit it per the monthly TDS schedule, and report in the TDS return.
• Pay within 30 days and keep the bank statements; a single day past the window triggers s.127 exposure.

FAQ

Who declares an interim dividend — board or shareholders?
The board declares interim dividends (s.123(3)). Shareholders approve the final dividend proposed by the board at the AGM.

Can an interim dividend be declared out of borrowed funds?
No. It must be out of current-year profits or free reserves. A distribution without profits is not a lawful dividend and exposes the directors.

Is a reserve transfer required before an interim dividend?
No. s.123(2) makes reserve transfer a board option; it is not a precondition for an interim dividend.

What if we pay the dividend after 30 days?
s.127 makes every director knowingly party to the default personally liable for the unpaid amount plus 18% simple interest, and punishable with imprisonment up to 2 years plus a fine.

When must the dividend amount be deposited?
Within 5 days of declaration, in a separate account with a scheduled bank (s.123(4)). This is separate from the TDS deposit, which follows the monthly TDS schedule after credit/payment [VERIFY timing with CA].

Sources

• Companies Act 2013, s.123 (dividend out of profits; interim dividend; deposit within 5 days), s.127 (penalty for non-payment within 30 days)
• Income Tax Act 1961, s.194 — TDS on dividend at 10%; threshold ₹5,000
• Income Tax Act 1961, s.2(22) — dividend definition (recharacterisation risk)
• Board-meeting minutes and resolution requirements under the Companies Act 2013

For a compliance audit of your company, visit pvtltd.co

---

See Also

• Dividend Taxation in Director's Hands Post-2020: No DDT, Section 115BBDA 10% on ₹10L+
• Salary vs Dividend for Director-Shareholder: Tax Comparison After Finance Act 2020
• Director Sitting Fees: TDS Under 194J and Companies Act Schedule III Disclosure