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Chit Funds And Tax - myPaisaa

The purpose of any investment is to generate a return. However, without proper homework, without understanding taxation, optimal returns are not possible

Chit Fund Tax Benefits

  The purpose of any investment is to generate a return. However, without proper homework, without understanding taxation,

optimal returns are not possible. This blog deals with taxation and chit fund tax benefits. Here’s our take on the various tax scenarios for investments in chit funds in general.

2 different kinds of people are  involved – you, the subscriber and the foreman. Both have different sources of income. Read on further to know more about how chit funds and tax benefits go hand in hand.

Taxation on the amount received by the subscribers

Let us explain through an example. If you are contributing Rs. 80,000 during the tenure and getting Rs. 90,000 from the chit Fund after the completion of the tenure, your income from the chit would be Rs. 10,000 only. The same would be your income for the purpose of Income Tax, taxable in the category ‘Other sources’. If your contribution is higher than your return, it is a loss. Businessmen and traders can set off this loss from chit against the business income. This will reduce the cost of capital for the borrower. Loss or profit and its magnitude can only be ascertained at the end of the chit fund. Declaration of this income/loss, hence, should only be done at the end. Tax on the dividend received by the subscribers You don’t have to deduct TDS on the dividends you earn during the chit tenure. The dividend you get each month is not interest, so section 194A is not applicable on this. All these dividends will contribute to income/loss you compute at the end of the chit tenure.

Taxation on the commission earned by the Foreman

Foreman acts on behalf of the chit fund company. He brings the subscribers together and conducts the chitty. He is responsible for collecting the money, presiding over the auctions, and keeping subscriber records. The foreman earns a fixed amount (generally 5%) as his commission/compensation for his efforts to manage the chit. So if there are 25 subscribers paying Rs. 4,000 monthly for 25 months in a Rs. 1,00,000 Chit, 5% of the chit value (Rs. 5,000 per month) will be the foreman commission. As per the instruction issued by the CBDT, commission earned by the foreman is income from business and if for any special reason there is loss then it is a business loss. Normally there should be no loss to the organizer unless he takes over the liability of some of the members. In case the foreman is unable to recover this amount, the group has to treat it as bad debt.

Indirect Taxes – GST and Chit Funds :

Now, from the direct taxes to the Indirect taxes, let’s see what Service Tax and GST have in store for Chit funds. The commission paid to foremen is compensation for the services provided in relation to chit fund, and hence is chargeable to service tax under “banking and other financial services”. Service Tax is applicable only on 70% of the value of commission. The finance ministry has allowed 30% abatement in this regard. If the commission earned was Rs. 100, then service tax would be applicable on Rs. 70. With the conversion of Service tax to GST, this informal industry is now gearing up to face the upcoming GSTthreat. Though other financial services such as loan providers, leasing, hire-purchase finance and mutual benefit companies in the NBFC sector have exemption, the chit fund companies don’t enjoy this exemption. The chit fund industry is requesting the government to grant it exemption or a lower slab of 5%  under GST, to ensure that this sector survives and continues to deliver to its customers.

Section 269 ST

Further on, Union budget has proposed a Rs. 2 lac limit on cash transactions, effective April1, 2017. It is one of the measures by the government to promote cashless economy. This move limits the cash transaction to Rs. 2 lac per day per person. If the amount exceeds, penalty equal to the exceeding amount, will be levied, unless there are good and sufficient reasons. The parties to the chit fund transactions need to be careful with this clause. The chit fund companies are to ensure that only the following methods are in usage – Account payee cheque

Account payee draft

Use of electronic clearing system through a bank account This new rule has a major impact as the parties involved, mostly makes payment in cash for their monthly installments, and even in case of cheque payments, they first deposit cash in the bank accounts. Chit Fund industry is also making a representation to the Government of India about this rule and its possible impact on the industry. There have been back to back many strokes by the Government to ensure all the transactions pass through legal channels and all money involves is accounted for. This will definitely show good returns in the long term. By ensuring all the cash transactions are recorded and are processed through legal channels, these financial transactions can be tracked end to end. This will give the chit fund industry a great upthrust. This time can be considered as a golden era to Chit funds, as government is keeping a track of all the cash transactions and making every bit to pass through a legal channel. The trust in this industry will soon be rebuild and if the government grants the exemption which the Chit Fund companies are requesting, then there would be no looking back!!!

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we focussed on educating the subscriber the importance of registered chit funds ahead of goodwill farming(unregistered) chit funds

In most of our previous articles, we focussed on educating the subscriber the importance of registered chit funds ahead of goodwill farming(unregistered) chit funds.

Let us understand this with the help of the story of a lawyer. Meet Mr. Raghu Prasad, a famous practising lawyer in the city. His father Mr. Sreenivas Prasad is a businessman and has a habit of investing in chits from childhood days of Raghu Prasad.

In other words, all financial needs of Sreenivas Prasad were catered with chit funds as a tool. Raghu grew up understanding this tool better than anyone else. Like a family doctor, Raghu’s family had a neighbourhood uncle for quite some time. As Raghu stepped into graduation and started to master the law, he realized that unregistered chits are not a safe practice and argued with this father multiple times.

Raghu explained his father, “Beyond any doubts registered chit funds are safe, responsible and they abide by a legal process defined.” Having grown up in this atmosphere, since the day Raghu started earning, he has been with registered chit funds only. One day, Raghu received a call from his father saying that neighbourhood chit uncle expired suddenly and he as a lawyer has to take up the case of on-going chit scheme dispute with the chit uncle. Raghu went to his village and explained all the chit group members who suffered the importance of Registered chit funds. He also started explaining the difference between unregistered chits and registered chits. Raghu explained, “Unregistered chit funds do not follow the paper oriented procedure where the subscriber just depends on the mutual trust on the person organizing chits like chit uncle in our case. These chits do not have a legal cover in case of mishaps like this. In registered chits, you can do everything from the comfort of your home as they put in the advanced technologies to work for you in delivering all information about your chit anywhere, anytime. Above all, they are registered with registrar of chits and come secured with legal cover if something goes wrong.”

Raghu continued, “Unregistered chit fund organizers resort to a) poor customer service practices b) harassment in collection practices. Lack of a formal and effective grievance management system has led to the subscribers feeling ill about chits. On the other hand with registered chits, there is a properly defined process and agreement, also the prize money is cleared on time (system-driven), efficient customer service, grievance support system makes life easy for the subscribers. Let’s all go for registered chits from now onwards.”

Meanwhile, Raghu spoke to the family members of chit uncle and worked out a way to return the money to the ongoing chit group which now stands terminated. It all ended on a happy note. For more information, please write to [email protected]

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Maha Save chits plans are myPaisaa 5 Lakh Chit Plan where you can saves 20,000 every month and pays a low commission of 5%. Grow your savings with our chit plans

Mypaisaa India’s first 100% digital chit fund app that allows you to invest and earn high returns of upto 10% annually, as well as borrow affordably in just a few easy steps. We are a completely transparent chit firm and it reflects in the way we do our auctions and payouts.

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Jaldi Save chits plans are myPaisaa 25K Chit Plan where you can saves 1,000 every month and pays a low commission of 5% . Contact my paisaa and Grow your savings

We are India’s first 100% digital chit fund app that allows you to invest and earn high returns of upto 10% annually, as well as borrow affordably in just a few easy steps. We are a completely transparent chit firm and it reflects in the way we do our auctions and payouts.

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Online Chits, Online Chit Funds India, Best Chit Funds, Best Chit Funds in India, Best Chit Fund Company, Best Online Chit Fund in India

The plans at myPaisaa have been designed keeping every single customer and their various goals in mind. Monthly Chit Fund Schemes, Chit Fund Plans, Monthly Chits Plans.

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How do Chit Funds work? - myPaisaa

When it comes to saving wisely or borrowing heartily, a trustworthy and reliant chit fund can always come to your rescue.

Let’s delve into the stories of two people, Rohan and Arjun.

This is Rohan’s Story:

Rohan aspires to be an entrepreneur.

He wishes to start an online retail business of his own where he can sell tees designed by various artists. But to start this, he’ll need a seed capital of at least 3 lakhs to invest in the printing machines and branding the company. He considered Banks to apply for a Business Loan but soon realized that the process of getting a loan approved was not only a herculean task but the interest rate was quite high as well.

He even considered looking at some promising government start-up schemes but most of them needed valid project reports or he was asked to mortgage his business property or company assets.

This is Arjun’s Story:

Arjun on the other hand works for an MNC.

He is doing considerably well and aims at deriving as much experience as he can while working there. With the money he makes, he is looking at several options where he can not only successfully save but sustainably grow his savings as well. As his job is pretty hectic, he does not have the time to consider investing in stocks. He’s also sceptical about investing in Crypto considering how the market crashed after China banned it.

Hence, he thought of saving in an FD but the rate of interest was too low for him to accrue any benefits from his savings. Moreover, there are penalties he would have to pay if he wanted to withdraw before the stipulated time period. He was looking for a more flexible option to save.

There is one financial tool that can benefit, both Rohan and Arjun.

The Chit Fund Advantage:

This financial tool has the legacy of being birthed in India and having survived since times immemorial. It is a particular form of saving/funding where you can borrow from your future self or earn for your future self. It is none other than Chit Funds.

Yes, Chit Funds is a rotary savings scheme from which you can borrow or invest based on your needs. The best part about it is that they are absolutely stable and are not prone to market fluctuations. In fact, investing/funding from a 100% digital, legal, registered, and regulated Chit fund like myPaisaa is beneficial. As you can sign up and complete KYC digitally, manage your chits on your App, take part in e-auctions, and bid from the comfort of your home.

So let’s understand how both Rohan and Arjun can benefit from Chit Funds.

Rohan can join the 3 lakh Chit Plan which is called the Zyada Save. All he has to do is contribute Rs 10,000 every month for about 30 months. In the meantime, he can participate in the Live auction and bid to win the chit in the first month itself. This means that Rohan can earn up to 95% of the chit value in one shot! Yes, the remaining amount will serve as the commission money that myPaisaa will charge and as the monthly dividend of Rs 2,800 that will be received by all members of the chit group.

In this manner, Rohan can acquire the entire amount he needs with immediate effect, hassle-free. He can continue paying Rs 10,000 every month as his contribution to the fund for which he’ll continue receiving Rs 2,800 as his monthly dividend as well.

Arjun on the other hand can also join the 3 lakh chit fund where he can choose to bid and take the amount towards the end of the term period. This means, that he can accrue 10% interest, that is about Rs 30,000 by the end of 30 months for having contributed Rs 3,00,000 on the whole. Hence, for investing 3 lakhs for 30 months, he’ll end up making Rs 3,30,000. Hence, making it a fruitful investment.

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Good Things Come to Those Who Save! - myPaisaa %

When it comes to maximizing your savings, Risk is a factor you should consider. Mindful Saving is about cautiously maximizing your returns on your investment

Savings

Chit Schemes, Saving is intrinsic to existence. We know that Squirrels hoard nuts during autumn so that they have enough food to last them through Winter. When it comes to the Psychology behind saving, it is probably as pedestrian as that. Except for us humans, there are more layers to it.

Eons ago, Economist John Maynard Keynes, stated that the wealthier the people became the more they saved, rather than consuming it. Why is that so? Because, apart from the preliminary reason to save which is to protect yourself from unforeseen circumstances, you can also save to maximize your savings.

With an avenue of motives one should consider to save, let us understand the various reasons one should save for:

1. Save for emergencies

Essentially, the word ‘save’ instills a sense of security and hope in us. As when you save, you’re building a refuge for yourself from life’s plausible uncertainties. You are safeguarding your future self.  It is all about stacking chips for a rainy day. Because when you save, you can weather any financial storm and be absolutely certain that you are thinking about long-term security.

2. Save to convert your income into wealth

They say that the first million is the hardest to make. Once you do, it is all about unlocking the power of compounding. For instance, let’s say that you follow the 50/30/20 rule when it comes to saving. Where you set aside 50% of your income for needs, 30% of your income for your wants/discretionary expenses, and 20% of your income goes to your saving pot. Before you make your first million, the value of that 20% is much lower compared to 20% of your million. The meteoric rise in the value of the increasing 20% is what compounding is all about. It is about harnessing and achieving exponential growth. So invest to leverage the potential of your savings.

3. Save to instill a sense of discipline

Saving bolsters your mental tenacity. It is easy to spend, it is easy to succumb to our whims and fancies at the cost of our expense. But, to withhold, to resist, to curtail does not come easily or naturally to us. Hence, it should be developed. This habit can be  perpetuated, only when you can discipline yourself. Also, it is advocated to save right from early on as it only gives your money, more time, and potential to grow. Now you understand why your parents got you that piggy bank when you were a kid. Don’t you?

4. Save to earn dividends

When it comes to maximizing your savings, Risk is a factor you should consider. Mindful Saving is about cautiously maximizing your returns on your investment. We’re all aware of the fluctuations in the Crypto, Stock, and Gold markets. So you can consider investing in chit funds.

It is basically a pool of money that can be created by investing a fixed amount as low as Rs 2,000, month on month. This type of investment not only gives you an Interest of 10% on your investment but also gives you fixed dividends every month. In case of an emergency, you can even bid and take the entire pool of money at no extra interest.

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Impact of eChits - myPaisaa

eChits have actually redefined the traditional way the registered chits work in India by bringing in more trust, convenience and transparency.

Impact of eChits

eChits are the electronic or digital approach towards chits leveraging technology for the convenience of the subscribers. The following are the key features of eChits

Digital chits increase transparency:

Digital solutions in the chit fund sector will be a push product as complete transparency strips the unlawful practices within the registered companies such as: running multiple chits with the license of one, running broken chits, and using chit money unlawfully in other ventures.

Ease of business first:

The unanimous demand is for ease of transaction and speedy credit of prize money. eChits focus on this first. Operational streamlining via digital Value Added Services (VAS) helps rectify the problems and lend the registered sector the flexibility.

Digital for the millennial:

Millennials are the people who despite having decent income and forming 47% of the Indian workforce do not participate in the chit fund sector. They are now becoming an active influx of chit funds as the digital approach to chits makes their lives hassle free.

E-KYC:

While the traditional companies initiate the process of verifying subscriber details after winning the prize money lengthens the pay-out time. eChits adopt a process of e-KYC and this is first in line while onboarding a subscriber.

E-auction:

eChits adopt latest technologies to ensure that the customer can participate in auctions electronically and need not visit the chit office. The bidding is done online and a subscriber can participate from his mobile or laptop from anywhere.

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Traditional Chits Vs. eChits - myPaisaa

In this article, we will make a quick comparison of chits and eChits. For the benefit of the audience, we will define both the terms

In our previous articles, we have made a clear comparison of how chits are a safe option for savings.

We also made a caution that registered chits only provide you the much needed security.

In this article, we will make a quick comparison of chits and eChits. For the benefit of the audience, we will define both the terms:

Traditional Chits: Chit is a sort of community funding where a group of individuals come together, contribute a predefined amount every month (period) and one person among the group will take the lump sum. This process will continue till all the group members get the amount. This is traditional way of doing chits.

eChits: The same process enabled on technology to create transparency and trust are termed as eChits. With the advancement of technology and mobiles, chits have gone digital with anytime, anywhere access. IBG eChits is one of India’s first digital chit fund company.

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Chits Vs. Mutual Funds Vs. Recurring Deposits: What should you choose? - myPaisaa

we are most prone towards the three options of chit funds, mutual funds and recurring deposits. We make an effort to analyse them and try to conclude in a simple way.

When it comes to small investments or savings, this is the most common question in the minds of general public.

Out of the many options we have in this space, we are most prone towards the three options of chit funds, mutual funds and recurring deposits. We make an effort to analyse them and try to conclude in a simple way.

For the benefit of common audience, we will define all three of them in simple sentences:

Chit: Chit is a sort of community funding where a group of individuals come together, contribute a predefined amount every month (period) and one person among the group will take the lump sum. This process will continue till all the group members get the amount.

Mutual Fund: It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities.

Recurring Deposits: A recurring deposit is a special kind of term deposit offered by banks which help people with regular incomes to deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits.

Now let’s see the different parameters that step in while considering to make a decision and compare all three of them:

Ease of Selection:

Selection for chits is easy as they are conducted by companies that register the chit with the government, selection of recurring deposits should also be easy if you have some basic knowledge of banking. However, selection of mutual fund for common audience is not an easy task as you need to analyse the performance of the fund organizer in last few years or months which need a lot of expertise and also it’s a herculean task to choose from 20000 MF schemes that fit you. From a common audience perspective, we rank the ease of selection this way. Chit funds are the easiest to select of all.

Product Understanding:

Again this is pretty straight forward both in case of chits and recurring deposits. As explained above mutual funds are good, but need more expertise to understand it.

Return & Risk:

There is a general myth that higher the risk, higher the returns. When it comes to savings, you must choose an option with No Risk and highest returns possible. Taking the averages, Chits has a low risk (registered chits) and gives returns between 12% to 14%. Recurring deposits also absolutely no risk, but the returns are low at about 5 to 7%. Mutual Funds are subjected to market, so risks are high and the returns are between 5 to 15%. We prefer chits over others when we consider Risk and Return factors

Ability to Borrow:

This option is only available with chit funds at a lower interest rate than the market.

Principal Guarantee:

Principal is guaranteed in the case chits and recurring deposits. In mutual funds, there is a risk of losing the principal amount.

More Money:

At any given point of time, chits give you more money than you have invested. Recurring deposits come to you with a nominal rate of interest. Mutual Funds may give more money, but the risk also is equally high.

Regulator:

All three of them are regulated by government agencies, hence are safe options. Chits must be registered with registrar of chits.

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How Chit Fund Works? - myPaisaa

Many of us must have heard or have an impression how chits work informally from the instances we have seen with our common friends or a neighbour from the community.

Many of us must have heard or have an impression how chits work informally from the instances we have seen with our common friends or a neighbour from the community.

Let’s make a detailed effort as to understand how chit actually works. It’s a simple concept. To make it further simple, we at IBG eChits have come up with a very simple example.

Understanding Terms:

Chit Value: If a new chit group is announced for 1 lakh rupees over a time 25 months, this amount is defined as chit value.

Chit Period: In the above example the time over which the chit group stays active is termed as chit value. It is 25 months in this case.

Subscribers: For 1 lakh chit Schemes, the chit company needs to gather 25 people. The number of people in a chit group are termed as subscribers.

Foreman: The chit company that runs a chit scheme is termed as foreman. In our case it is IBG eChits.

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Six Reasons why you should invest in Chits - myPaisaa

Most of us heard the term chits and should be having an experience of investing chits with a common friend or a neighbour in a residential community.

Most of us heard the term chits and should be having an experience of investing chits with a common friend or a neighbour in a residential community.

Did you know that these investments are not secure, though they are trustworthy. There is no legal cover in case of a dispute or conflict of interest. This experience makes you feel that Chits are a complex tool.

You need to know that there three types of Chits:

State Government Run Chits: There are few state governments who officially run chits for people in a fair and transparent manner. These are safe to invest.

Private Registered: These chits are run by private companies, but they register the chit including security amount with the registrar of chits. This creates security for the subscribers legally. Here the service from the provider is transparent and trust worthy.

Unregistered: These are run by common friends and do not have a legal cover. It is not a safe investment. It is very important the subscriber is aware of this.

Not that all state governments run chits. The viable option for the investor should be to go with private registered chit fund companies like IBG eChits. Now as we are clear which type of chit we need to opt for, let us look at top 6 reasons why we need to invest in chits:

Chits are Unique:

This is the only financial instrument that enables both saving and instant borrowing. The borrowing also happens at a much lower than market interest rates.

Low Risk and Better Returns:

If you opt with a private registered chit fund company like IBG eChits, the risk is low and the returns are around 12% to 14%.

Personalized as per need:

There are many chit schemes that are personalized as per your need or as per your budget savings. You can choose what works for you.

Regulated:

Chits are regulated by registrar of chits. Hence safe to invest as there is a legal cover.

Monitored:

With companies like IBG eChits adopting block chain technology for their chit operations, monitoring has become more transparent and trustworthy

Sustenance of Investment:

In chits you are always get the prize money higher than the total amount you paid for the scheme. It helps in sustenance of investment.

Ease of Understanding:

The concept of chits is very easy to understand for everyone. It is a viable option for everyone.

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We are India’s first 100% digital chit fund firm that’s licensed by the Government of India. The myPaisaa app allows you to invest and earn great returns

They say, “Necessity is the mother of all inventions”. The story of myPaisaa is no different. Like most Indians, we came through the grind, attained a good education in prestigious institutes in India & abroad.

All of us reached good positions like AVP, DVP, CEO, Partner etc., in our corporate lives. Chit funds played a huge role in our lives as almost all major expenses were met by savings made by our parents in chit funds.

Over the last few years we have been actively brainstorming on how we can give back to society, we found that some of our friends, relatives, acquaintances were not able to achieve financial security due to their investments in mismanaged chit funds. Not having a banking history didn’t help matters either. This situation triggered the idea for change, this is how myPaisaa was born – to help people become financially secure and to realise their dreams in a fair & transparent way.

What is myPaisaa?

We are India’s first 100% digital chit fund firm that’s licensed by the Government of India. The myPaisaa app allows you to invest and earn great returns as well as borrow affordably in just a few easy steps. We are a completely transparent chit firm and it reflects in the way we do our auctions and payouts.

Why myPaisaa?

Truly Digital

Trustworthy

Customer-Centric

Rewarding

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Chit Funds And Tax - myPaisaa

The purpose of any investment is to generate a return. However, without proper homework, without understanding taxation, optimal returns are not possible

Chit Fund Tax Benefits

The purpose of any investment is to generate a return. However, without proper homework, without understanding taxation,

optimal returns are not possible. This blog deals with taxation and chit fund tax benefits. Here’s our take on the various tax scenarios for investments in chit funds in general.

2 different kinds of people are  involved – you, the subscriber and the foreman. Both have different sources of income. Read on further to know more about how chit funds and tax benefits go hand in hand.

Taxation on the amount received by the subscribers

Let us explain through an example.

If you are contributing Rs. 80,000 during the tenure and getting Rs. 90,000 from the chit Fund after the completion of the tenure, your income from the chit would be Rs. 10,000 only. The same would be your income for the purpose of Income Tax, taxable in the category ‘Other sources’. If your contribution is higher than your return, it is a loss. Businessmen and traders can set off this loss from chit against the business income. This will reduce the cost of capital for the borrower. Loss or profit and its magnitude can only be ascertained at the end of the chit fund. Declaration of this income/loss, hence, should only be done at the end. Tax on the dividend received by the subscribers You don’t have to deduct TDS on the dividends you earn during the chit tenure. The dividend you get each month is not interest, so section 194A is not applicable on this. All these dividends will contribute to income/loss you compute at the end of the chit tenure.

Taxation on the commission earned by the Foreman

Foreman acts on behalf of the chit fund company. He brings the subscribers together and conducts the chitty. He is responsible for collecting the money, presiding over the auctions, and keeping subscriber records. The foreman earns a fixed amount (generally 5%) as his commission/compensation for his efforts to manage the chit.

So if there are 25 subscribers paying Rs. 4,000 monthly for 25 months in a Rs. 1,00,000 Chit, 5% of the chit value (Rs. 5,000 per month) will be the foreman commission.

As per the instruction issued by the CBDT, commission earned by the foreman is income from business and if for any special reason there is loss then it is a business loss. Normally there should be no loss to the organizer unless he takes over the liability of some of the members. In case the foreman is unable to recover this amount, the group has to treat it as bad debt.

Indirect Taxes – GST and Chit Funds :

Now, from the direct taxes to the Indirect taxes, let’s see what Service Tax and GST have in store for Chit funds. The commission paid to foremen is compensation for the services provided in relation to chit fund, and hence is chargeable to service tax under “banking and other financial services”. Service Tax is applicable only on 70% of the value of commission. The finance ministry has allowed 30% abatement in this regard. If the commission earned was Rs. 100, then service tax would be applicable on Rs. 70. With the conversion of Service tax to GST, this informal industry is now gearing up to face the upcoming GSTthreat. Though other financial services such as loan providers, leasing, hire-purchase finance and mutual benefit companies in the NBFC sector have exemption, the chit fund companies don’t enjoy this exemption. The chit fund industry is requesting the government to grant it exemption or a lower slab of 5%  under GST, to ensure that this sector survives and continues to deliver to its customers.

Section 269 ST

Further on, Union budget has proposed a Rs. 2 lac limit on cash transactions, effective April1, 2017. It is one of the measures by the government to promote cashless economy. This move limits the cash transaction to Rs. 2 lac per day per person. If the amount exceeds, penalty equal to the exceeding amount, will be levied, unless there are good and sufficient reasons. The parties to the chit fund transactions need to be careful with this clause. The chit fund companies are to ensure that only the following methods are in usage – Account payee cheque

Account payee draft

Use of electronic clearing system through a bank account This new rule has a major impact as the parties involved, mostly makes payment in cash for their monthly installments, and even in case of cheque payments, they first deposit cash in the bank accounts. Chit Fund industry is also making a representation to the Government of India about this rule and its possible impact on the industry. There have been back to back many strokes by the Government to ensure all the transactions pass through legal channels and all money involves is accounted for. This will definitely show good returns in the long term. By ensuring all the cash transactions are recorded and are processed through legal channels, these financial transactions can be tracked end to end. This will give the chit fund industry a great upthrust.This time can be considered as a golden era to Chit funds, as government is keeping a track of all the cash transactions and making every bit to pass through a legal channel. The trust in this industry will soon be rebuild and if the government grants the exemption which the Chit Fund companies are requesting, then there would be no looking back!!!

[mypaisaa]

Registered Chits Vs. Unregistered Chits - myPaisaa

we focussed on educating the subscriber the importance of registered chit funds ahead of goodwill farming(unregistered) chit funds

In most of our previous articles, we focussed on educating the subscriber the importance of registered chit funds ahead of goodwill farming(unregistered) chit funds.

Let us understand this with the help of the story of a lawyer. Meet Mr. Raghu Prasad, a famous practising lawyer in the city. His father Mr. Sreenivas Prasad is a businessman and has a habit of investing in chits from childhood days of Raghu Prasad.

In other words, all financial needs of Sreenivas Prasad were catered with chit funds as a tool. Raghu grew up understanding this tool better than anyone else. Like a family doctor, Raghu’s family had a neighbourhood uncle for quite some time. As Raghu stepped into graduation and started to master the law, he realized that unregistered chits are not a safe practice and argued with this father multiple times.

Raghu explained his father, “Beyond any doubts registered chit funds are safe, responsible and they abide by a legal process defined.” Having grown up in this atmosphere, since the day Raghu started earning, he has been with registered chit funds only. One day, Raghu received a call from his father saying that neighbourhood chit uncle expired suddenly and he as a lawyer has to take up the case of on-going chit scheme dispute with the chit uncle.

Raghu went to his village and explained all the chit group members who suffered the importance of Registered chit funds. He also started explaining the difference between unregistered chits and registered chits. Raghu explained, “Unregistered chit funds do not follow the paper oriented procedure where the subscriber just depends on the mutual trust on the person organizing chits like chit uncle in our case. These chits do not have a legal cover in case of mishaps like this. In registered chits, you can do everything from the comfort of your home as they put in the advanced technologies to work for you in delivering all information about your chit anywhere, anytime. Above all, they are registered with registrar of chits and come secured with legal cover if something goes wrong.”

Raghu continued, “Unregistered chit fund organizers resort to a) poor customer service practices b) harassment in collection practices. Lack of a formal and effective grievance management system has led to the subscribers feeling ill about chits. On the other hand with registered chits, there is a properly defined process and agreement, also the prize money is cleared on time (system-driven), efficient customer service, grievance support system makes life easy for the subscribers. Let’s all go for registered chits from now onwards.

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