On July 31, 2019, The Union Cabinet approved the Introduction of Chit Funds (Amendment) Bill, 2019 in Parliament. It is aimed at reducing the regulatory or compliance burden of the registered Chit Funds Industry and protect the interests of the Chit subscribers. It will amend the Chit Fund Act 1982.
- Background: On February 20, 2018, the Union Cabinet had permitted to introduce the Chit Funds (Amendment) Bill 2018 in the parliament. But it was lapsed.
- Changes: The new bill will be incorporating the recommendations of the Parliamentary Standing Committee. The changes may be similar to the bill of 2018. The committee recommended that bill should incorporate insurance coverage for the chit fund subscribers where the cost must be borne by the chit fund company.
- Provisions of Bill: At least 2 subscribers should be present either in person or through video-conferencing while opening chit bids. They could be created only with the prior sanction of the relevant State Government. The bill provided for hike in commission of foremen from 5% to 7%.
- A ROSCA Institution: It may allow a chit fund company to mention under their name as ‘A ROSCA Institution’ (Rotating Savings & Credit Association). This will help in distinguishing their business from other unconnected business. The old Bill had a provision for incorporating the name ‘fraternity fund’ instead of the commonly known ‘chit fund.’ Hereafter, words ‘A ROSCA Institution’ will be added to the nomenclature ‘fraternity fund’. It will help chit funds in their image makeover and brand building.
- Limit: New Bill is enhancing the limit for individual contribution to Rs 3 lakh from Rs 1 lakh. For companies, it would be Rs 18 lakh as against the present provision of Rs 3 lakh.
- Present Status: Chit Fund Act 1982 does not apply to chits which are smaller than Rs 100. The 2018 Bill removed the limit of Rs 100. The State Governments were allowed to set the limit. The government has not released all the details about the 2019 bill. It is yet to be introduced in the parliament.
About Chit Funds:
It is a group of people who agree to pay a certain amount periodically into a fund and one of the subscribers is chosen by drawing a ‘chit’ to be the recipient of the prize money from the fund.