Majesco Fat Dividend - Mesmerized & Confusing

Majesco last week declared a fat equity dividend of 19,480% being Rs. 974 per share, on FV of Rs.5, mesmerized everyone and tempted even savy investors to buy the stock, without realising the tax aspect of it. We have received multiple queries on this from investors over the last one week and hence putting the record straight here. Share will go ex dividend from Wednesday, 23rd December, with record date being at 25th December.

Caution is thrown to all, to avoid buying share now, cum dividend, as entire amount of Rs. 974 dividend to be received, will be taxed as normal income, which will attract tax at 26% for Bodies Corporate and at marginal rate of taxation for Individuals and HUFs, which can be as high as 36% for Super Rich. Share having closed at Rs. 974 on Friday and if continue to rule at same rate on Tuesday closing, share price gets reduced by dividend amount as a rule, which should technically make it rule at NIL on this Wednesday.

It is foolish to pay tax on our own money, having converted in dividend, assuming it to be at 25%, being Rs. 244, as income tax on dividend. Some would argue that STCG can be adjusted against this loss. Instead pay tax @ 15% on STCG and get rid of, which will be lower than tax on dividend. Some say that individuals with income up to Rs. 5 lakh may go for this dividend, which is a theoretical scenario and probably applicable to a miniscule number of users only, as person with cash of 5 lakh will have some source of other income as well.

Maybe, HNIs and Promoter would be keen to sale their holdings in the open market, as LTCG for them will be 10% instead of paying 25% or so on dividend. So, do not get trapped by buying the share on cum dividend basis.

If one wish to buy, do it on Wednesday on ex basis, even at Rs.10, as company will still be holding cash of Rs. 103 crore and Realty assets with NPV of Rs. 60 crores, on issued equity  being at 3 crore shares.