The Government of India has recently announced that there is a plan to introduce key amendments to the Chit Fund Act 1982 in the next parliament session. This is a long awaited legislative step, which finds a wide welcome in the chit fund industry – from investors and companies alike. We at Shantala Chits whole heartedly welcome this move from the government. This step would bring a much needed facelift to the industry’s credibility and safeguard investor’s interest.
The Bill was introduced during last Lok Sabha but it could not be passed and finally lapsed. Information & Broadcasting Minister Prakash Javadekar said the new Bill has incorporated some of the recommendations of the previous Department related Standing Committee on Finance.
Shantala Chits is a renowned and responsible player in the chit fund industry with a successful track record of 23 years. We are committed to educating our customers and the general public on key developments in our industry. We believe that a key factor to the success of our business is an informed investor.
Listed below are the important provisions likely to be present in the amendment to the chit Fund Act 1982:
Mention ‘A ROSCA Institution’ under the name
Chit Fund companies can now distinguish themselves from other unconnected businesses by adding ‘A ROSCA Institution’ under their names. ROSCA stands for ‘Rotating Savings & Credit Association’. This move would help companies build a common identity and brand across the industry.
Enhanced limits of contribution
Limits on individual contributions would be enhanced from Rs 1Lakh to Rs 3Lakh. Similarly, company contribution limit would go up from the present Rs 3Lakh to Rs 18Lakh.
Presence of subscribers through video-conferencing
The Act specifies that a chit will be drawn in the presence of at least two subscribers. The Bill seeks to allow these subscribers to join 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%.
Application of the Act
Currently, the Act does not apply to: (i) Any chit started before it was enacted, and (ii) Any chit (or multiple chits being managed by the same foreman) 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.
Foreman to have a right to lien
The act proposes to enable the foreman to have a right to lien for the dues from subscribers. So that set-off is allowed by the chit fund for subscribers who have already drawn funds. This move is to discourage default by early withdrawers.
Shantala Chits is a registered chit fund company under the Chit Fund Act of 1982, Government of Karnataka. We believe that chit funds are a mutually rewarding financial instrument for those in need of money and for those who want to save money.
With these proposed amendments, the goal is to minimise the compliance burden for registered chit funds. Chit funds are a popular choice of house hold investors and small businesses. The proposed amendments to the Chit Fund Act would reinforce their belief in the chit fund industry and secure their investments. Recent episodes of financial fraud such as the IMA scam will hopefully be avoided in future once this legislation is passed.