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of <h1>Clarification on Companies Act: Transfer 10% Profits to Reserves Before Dividends, Higher Voluntary Transfers Allowed Per Section 205(2A).</h1> The circular addresses queries regarding the Companies (Transfer of Profits to Reserves) Rules, 1975, and the Companies (Declaration of Dividend out of Reserves) Rules, 1975, particularly concerning Section 205(2A) of the Companies Act. It clarifies that companies must transfer up to 10% of profits to reserves before declaring dividends, but can voluntarily transfer a higher percentage. A misunderstanding arose from the use of 'higher' in the proviso, leading to the suggestion that it should be 'lower.' The government clarified that the term 'higher' is correct, allowing voluntary transfers of more than 10% subject to rules.
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