The Chit Funds are the indigenous business in India, Chit Funds Act, 1982 was enacted to provide mechanism for the regulation of chit funds. The chit is nothing but mechanism which aid in combination of credit and savings in a scheme, in which a group of peoples come together for a pre-determined interval of time and subscribe a certain sum of money by way of periodical installments and each such subscriber, in his term as determined by auction or by tender or by lot or any other specified manner, gets the collected sum.
About amendment bill 2019
- In Lok Sabha on 5th august 2019 the Chit Funds Amendment Bill, 2019 was introduced to amend the Chit Funds Act, 1982. The chit fund act 1982 regulates chit funds, and prohibits a creation of fund without the prior sanction of the state government. Under a chit fund, group of people agree to pay a certain amount from time to time into a fund. One of the subscribers is periodically chosen by drawing a chit to receive the prize amount from the fund.
- Substitution of terms: The Act also defines certain terms in relation to chit funds. Such as
(a) ‘Chit amount’ as the sum of subscriptions payable by all the subscribers of a chit;
(b) ‘Dividend’ as the share of the subscriber in the amount kept apart for running the chit;
(c) ‘Prize amount’ as the difference between chit amount and the amount kept apart for running the chit.
The Bill changes the names of above term to ‘gross chit amount’, ‘share of discount’ and ‘net chit amount’, respectively.
- Names for a chit fund: The chit fund Act specifies various names which may be used to refer to a chit fund. Such as chit, chit fund, and kuri. The amendment now additionally inserts ‘fraternity fund’ and ‘rotating savings and credit institution’ to act.
- Presence of subscribers through video-conferencing: Bill seeks to allow these subscribers to join via video-conferencing as original Act specifies that a chit will be drawn in the presence of at least two subscribers.
- Foreman’s commission: in chit fund act the ‘foreman’ is responsible for managing the chit fund who entitled to a maximum commission of 5% of the chit amount. The Bill aim to increase the commission to 7% and also has right to lien against the credit balance from subscribers.
- Aggregate amount of chits: the Act specifies the maximum amount of chit funds which may be collected. Chits may be conducted by firms, associations or individuals. These limits are:
- one lakh rupees for chits conducted by individuals, and for every individual in a firm or association with less than four partners, and
- Six lakh rupees for firms with four or more partners.
- The Bill increases these limits to three lakh rupees and eighteen lakh rupees, respectively.
- Application of the Act: chit fund act does not apply to:
- For any chit started before it was enacted,
- For any chit where the amount is less than Rs 100.
The Bill removes the limit of Rs 100, and allows the state governments to specify the base amount over which the provisions of the Act will apply.