On August 5, 2019, the Chit Funds (Amendment) Bill, 2019 was introduced in Lok Sabha. The Bill seeks to amend the Chit Funds Act, 1982. The 1982 Act regulates chit funds and prohibits a fund from being created without the former sanction of the state government. As per the Chit Fund, people agree to pay a certain amount from time to time into a fund. Periodically, one of the subscribers is selected by drawing a chit to receive the prize amount from the fund.
The provision of the Chit Funds (amendment) bill-2019
Names for a chit fund:
The Act specifies various names which may be used to refer to a chit fund. These include chit, kuri, and chit fund. The Bill additionally inserts ‘fraternity fund’ and ‘rotating savings and credit institution’ to this list.
Substitution of terms:
The Act defines certain terms related to chit funds.
‘dividend’ as the share of the subscriber in the amount kept apart for running the chit; and
‘chit amount’ as the sum of subscriptions payable by all the subscribers of a chit;
‘prize amount’ as the difference between chit amount and the amount kept apart for running the chit.
The Bill alters the names of these terms to ‘share of discount’, ‘net chit amount’ and ‘gross chit amount’, respectively.
Presence of subscribers through video-conferencing:
The Act states that a chit will be drawn in the presence of at least two subscribers. Also the bill permits these subscribers to connect via video-conferencing.
Under the Act, the ‘foreman’ is responsible for managing the chit fund. He is entitled to a maximum commission of 5% of the chit amount. The Bill seeks to increase the commission to 7%. Moreover, the Bill permits the foreman a right to lien against the credit balance from subscribers.
Aggregate amount of chits:
Under this Bill, chits may be conducted by associations, individuals or firms. The Act specifies the maximum amount of chit funds which may be collected.
These limits are:
one lakh rupees for chits conducted by individuals, and for every single person 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 18 lakh rupees, respectively.
Application of the Act:
The Act does not apply to:
any chit initiated before it was enacted, and
any chit (or various chits being managed by the same foreman) where the amount is less than Rs 100
The Bill removes the limit of Rs 100, and permits the state governments to specify the base amount over which the provisions of the Act will apply