Rule 3: Dividend declaration and payment within India
Rule 3 sets three arrangements for declaration and payment of dividends within India under section 2(42): an Indian share register, an Indian general meeting, and dividends payable only within India.
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Rule 3 - Arrangements for declaration and payment of dividends within India
The arrangements referred to in section 2(42) to be made by a company for the declaration and payment of dividends (including dividends on preference shares) within India shall be as follows: (a) the share-register of the company for all shareholders shall be regularly maintained at its principal place of business within India, in respect of any tax year from a date not later than the 1st April of such year; (b) the general meeting for passing the accounts of the tax year and for declaring any dividends in respect thereof shall be held only at a place within India; and (c) the dividends declared, if any, shall be payable only within India to all shareholders.
Rule breakdown
Maintain the share register at the required place and time
For the relevant tax year, the company’s share register for all shareholders must be regularly maintained at its principal place of business within India, from a date no later than 1 April of that year. Merely creating a year-end copy does not establish regular maintenance from the required date.
Locate the accounts and dividend meeting in India
The general meeting for passing the tax-year accounts and declaring any dividends in respect of them must be held only at a place within India. Preserve the notice and minutes as practical evidence of the meeting location and the resolutions actually passed.
Check the dividend payment arrangement
Dividends declared, if any, must be payable only within India to all shareholders. The rule supplies arrangements for the section 2(42) test; it is not a standalone exemption from tax, withholding or other company-law requirements.
Practical evidence file
Keep the share-register location and maintenance records, meeting documents, dividend resolutions and payment instructions together. These records help demonstrate the three conditions; this checklist does not create an additional statutory form under Rule 3.
Key takeaways
All shareholders
The share-register condition covers every shareholder, and the payment condition also applies to all shareholders.
Preference dividends included
The opening text expressly includes dividends on preference shares.
Three linked arrangements
Read the register, meeting and payment requirements together when testing the prescribed arrangements.
Practical checklist
- Check the register position from no later than 1 April of the relevant tax year.
- Record the Indian location of the relevant general meeting.
- Review payment instructions for every shareholder class.
Avoid
- Do not omit preference shareholders from the analysis.
- Do not treat these arrangements as a dividend tax exemption.
FAQs
Does Rule 3 cover preference-share dividends?
Yes. The opening wording expressly includes them.
Can the relevant general meeting be held outside India?
The arrangement prescribed by clause (b) requires it to be held only at a place within India.
Does Rule 3 require a dividend to be declared every year?
The payment limb refers to dividends declared, if any. The rule prescribes arrangements; it does not itself order an annual dividend declaration.