Interim Dividend

'Dividend' includes interim dividend
According to section 2(35)of the Companies Act,2013 ('the 2013 Act'), “dividend” includes any interim dividend. This means that whatever provisions apply to declaration of final dividend shall also apply to interim dividend subject, of course, to the provisions of section 123(3) and the proviso to section 123(3).

Sources from which interim dividend can be declared and paid
Section 123(3) of the Companies Act,2013  provides that the Board of Directors of a company may declare interim dividend during any financial year out of:

• the surplus in the Profit and Loss account as well as
• the profits for the financial year in which the interim dividend is sought to be declared. 

Contrast section 123(3) with section 205(1A) of the Companies Act,1956 which provided that
"The Board of Directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account  within five days from the date of declaration of such dividend"

It can be seen that section 205(1A) of the 1956 Act did not specify the sources from which interim dividend can be declared. Section 123(3) specifies sources from which interim dividend can be declared. It appears that, under the 2013 Act, interim dividend can be paid only from 'surplus in the Profit and Loss Account' and profits of the current financial year. It seems that past profits lying in Reserves cant be used for Interim Dividend. MCA or ICAI needs to clarify this.

Article II(81) of Table F of Schedule I to the 2013 Act provides that subject to the provisions of section 123, the Board may from time to time pay to the members such interim dividends as appear to it to be
justified by the profits of the company.

Maximum rate of interim dividend that can be declared if company has incurred loss during the current financial year up to the end of the immediately preceding quarter
In case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years. [ Proviso Section 123(3)]