ALL INDIA ASSOCIATION SEA OF CHIT FUNDS (Registered
Date: 05-07-2022
Increase of GST on Chit Fund Services
Increase of GST The GST payable on Chit Fund services has been increased from 12% to 18%. The increase has come as a rude shock while we have been all along requesting the Govt. to exempt Chit Fund services from the levy of GST as it has been done in the case of financial services rendered by other financial institutions.
What is a Chit Fund and how does it work? Chit Fund is a unique and indigenous financial instrument that combines savings and borrowing which caters to the financial needs of mostly middle income and low income group of people who do not have access to formal banking facilities. We serve the unbanked and underbanked people and help in promoting financial inclusion.
A Chit Fund is created by blending sayers and borrowers in a group. The savings are pooled and given to a needy person every month. The person wanting to take the chit amount fixes the rate of discount to be foregone by him to get the chit amount. Size of the Chit Fund Industry There are over 20,000 chit fund companies in India serving more than 50 Lakh customers in about 2 Lakhs chit groups. The chit amount disbursed in a year is to the tune of Rs.60,000 Crore.
In Tamil Nadu alone, there are more than 2600 companies as per the data given by the Registrar of Chits. The aggregate value of all new chits registered in the last year is more than Rs. 2000 Crore.
Similarity with other Financial Institutions Financial institutions like Banks, NBFCs and MFIs provide opportunities to the people to save money and also to borrow money for the needy people. We do similar services by forming small groups of people of 30 or 40 people. In fact, we are the only financial institution, apart from Banks, to help mobilise small savings. The cost of funds to a borrower in chit fund is cheaper when compared to other market sources.
The other financial institutions get interest as the consideration for their services while the consideration we get for our services is called commission.
ALL INDIA ASSOCIATION SEA OF CHIT FUNDS (Registered)
Regulation
Banks, NBFCs, and MFIs are controlled by the guidelines and directions issued by the Reserve Bank of India. Chit Funds are governed by the Chit Funds Act, 1982 which is a central legislation administered by the State Governments. Chit Funds are highly regulated and every chit is to be registered with the Registrar of Chits and commencement certificates is to be obtained before starting the chit. The details of monthly auctions and prized subscriber are or to be furnished regularly to the Registrar of Chits.
Safety of Chit Funds
Chit Funds are very safe as an amount equivalent to 100% of the value of every chit to be commenced and conducted is kept in the form of fixed deposits with banks in the name the Registrar of Chits. This security deposits is returned to the chit fund company only on termination of the chit group and after the Registrar has satisfied himself that all payments due to the subscribers have been duly paid by the chit fund company.
Anomaly in the levy of GST
While the consideration received by Banks, NBFCs and MFIs which is called interest is fully exempt from the levy of GST, the consideration received by the chit funds which is called commission for rendering a similar service is subjected to a levy of GST at 18%. Impact of GST
GST levied on Chit Funds has the effect of reducing the return on savings for the savers and increasing the cost of funds to the borrowers. As already said, Chit Fund companies carefully blend savers and borrowers in a every chit group. If the return on savings is diminished, savers will not be attracted to chit funds. The Chit Fund companies will not able to form chit groups and the unbanked and under-banked people will be deprived of availing of loans at competitive rates, Chit Fund customers like small business people, start-ups, self-employed people and the middle-class people in general will be forced to borrow money from money lenders at interest rates ranging from 36% to 60 % per annum from money lenders. What we want?
We want the anomaly in the levy of GST on Chit Funds to be corrected. The Chit Fund services should be totally exempt from the levy of GST as it has been done in the case of other financial services.
Chit Fund is an Indian treasure like our Yoga, Siddha and Ayurveda. It has to be nurtured and grown to reach more and more people. The indigenous financial instrument that inculcates the habit of savings and giving a systematic savings plan (SSP) to save money and borrow on easy, simple and transparent terms should be encouraged and allowed to grow. We are not asking for any concession or rebate; we are only asking for rectification of an anomaly in the matter of levy of GST on Chit Funds.
A.Chitrarasu General Secretary.
