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Corporate Accounting Treatment

How to calculate Stock Dividend & Cash Dividend, Income TAX (AIT) -With Examples

1.Stock Dividend Calculation:

A Stock Dividend is paid out in the form of additional shares rather than cash. It is based on a percentage of the shares that the investor holds.

Formula:

$$\text{Stock Dividend}=\text{Current Number of Shares}\times (\frac{\text{Stock Dividend Percentage)}}{100}$$

Example:

Company declares a 10% stock dividend.

An investor holds 1,000 shares.

$$\text{Stock Dividend}=1,000\times \left(\frac{10}{100}\right)=100\text{ additional shares}$$

The investor will receive 100 additional shares.

2.Cash Dividend Calculation:

A Cash Dividend is a payment made by a company to its shareholders in cash, usually on a per-share basis.

Formula:$$$$$$\text{Cash Dividend}=\text{Number of Shares Owned}\times \text{Dividend per Share}$$

Example:

Company declares a cash dividend of Tk. 2 per share.

An investor holds 1,000 shares.

$$\text{Cash Dividend}=1,000\times 2=\mathrm{Tk.2},000$$

The investor will receive Tk. 2,000 in cash as a dividend.

3.Advance Income Tax (AIT) on Dividends:

In Bangladesh, Advance Income Tax (AIT) is deducted at source on both cash and stock dividends.

For resident shareholders, the AIT on cash dividends is 10% if the shareholder has a TIN (Taxpayer Identification Number) and 15% if not.

For non-resident shareholders, the rate is 20%.

For stock dividends, there was previously no AIT, but recent regulations may change this. Always check the latest tax laws from the National Board of Revenue (NBR).

Example (for Cash Dividend):

Declared Cash Dividend = Tk. 2,000

AIT Rate = 10%

$$\text{AIT Deduction}=2,000\times \; (10/100)\; =Tk.200$$

So, the net cash dividend after AIT will be:

$$\text{Net Cash Dividend}=2,000-200=\mathrm{TK,\; 1,800 }$$

For stock dividends, if taxable, you would follow a similar approach based on the applicable rate.

In Finally:

1.Stock Dividend: Multiply the number of shares owned by the stock dividend percentage.

2.Cash Dividend: Multiply the number of shares by the dividend per share.

3.AIT: Deduct AIT from the cash dividend based on the applicable rate (10%, 15%, or 20%).

These calculations help investors understand their dividends and tax liabilities. It’s also recommended to stay updated with changes in tax regulations in Bangladesh for accurate tax deductions.