Is there any catch?
You should be aware that whenever a stock announces dividend, on ex-dividend date the value of stock falls to the extent of dividend paid, the reason for this price drop is because the amount paid out no longer belongs to the company.
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A 15% move after dividend is needed to justify dividend tax, correct?
buying stock just to profit from dividend isn’t a good idea… the stock price will correct to extent of dividend paid and same amount will come in your bank account 0 profit 0 loss… though you will have to pay tds on dividend paid if it exceeds 5000… so net you will actually be losing some money.
Hi,
Assuming one holds the shares as an investment and also falls under the 30% tax slab, it would make sense to sell the shares in the stock-exchange rather than obtain dividend. Reason being, dividends are taxed at the slab rates applicable whereas capital gains are taxed at either 10% or 15% (depending on whether it is long term / short term gains) for a resident individual.
Going by this assumption, I would say that it is preferable to sell the shares (rather than obtain dividend) in the stock-exchange till Rs. 779 to Rs. 827 approx. This price range being the parity point between the different tax rates applicable for capital gains and dividend income.
Of course, not everyone would be taxed in the highest slab. But it is beneficial (in terms of post-tax income) for many people to sell it at prices lesser than Rs. 974 in the market, when compared to receiving the dividend. So, it really comes down to which slab you are falling under. Hope, this was helpful.
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In that time , when dividend was tax free, stock price was getting adjusted by subtracting dividend amount. (i.e. if closing price is 980 & dividend is 974 then next settled price will be 6), but as of now investor will have to pay tax so it might get adjusted like 974*30%=292.20. and the investor will be in profit only if the stock will trade above 292.20 after dividend.
pls correct, if i’m wrong. thanks.
Though Dividend is made taxable in the hands of shareholder , still the same old rule apply for stock price adjustment on EX date in case of Dividend being 5% or more …example after 1 April 2021 being Goodyear tyre , ITC , Hind zinc etc.
the only un- answerable question is what if market price of Majesco on 22 December close is 974 or less than 974 ? HOW IT WILL TRADE ON 23 DECEMBER?
after dividend stock is around 12.80. those who had the stock in DP, will get dividend of 974. & pay tax (of 97.4 who has slab of 10% IT & 292.2 for those who pay IT in slab of 30%)
so as per my cal, the stock holder hasn’t benefited, they will come profit when stock rise more than IT paid.