The Chit Funds (Amendment) Bill 2019 – Key Proposals. Increase in ceiling of aggregate chit amount , presence allowed through video conferencing
Government today introduced in the Lok Sabha, the Chit Funds (Amendment) Bill, 2019 to amend the Chit Funds Act, 1982. On enactment the Act shall be called the Chit Funds (Amendment) Act, 2019.
The chit is a mechanism which combines credit and savings in a scheme, in which a group of individuals come together for a pre-determined duration and subscribe a certain sum of money by way of periodical instalments and each such subscriber, in his term as determined by lot or by auction or by tender or any other specified manner, gets the collected sum. In this way, people who are in need of funds and those who want to save are able to meet their requirements simultaneously.
The Chit Funds Act, 1982 was enacted to provide for the regulation of chit funds which are indigenous business in India and have conventionally satisfied the financial needs of the low-income households.
In past, due to challenges being faced by the chit business, the Central Government constituted a Key Advisory Group on chit funds to review the existing legal, regulatory and institutional framework for chit funds and its efficacy and to suggest legal and regulatory initiatives required for orderly growth of the said sector. The Key Advisory Group submitted its recommendations relating to improvements in the institutional and legal structure to further develop the chit business in order to reduce the regulatory burden of the chit business and to protect the interest of the subscribers of the chits.
The Parliamentary Standing Committee on Finance (Sixteenth Lok Sabha), in its twenty-first Report on “Efficacy of Regulation of Collective Investment Schemes (CIS) Chit Funds, etc.” had also recommended to finalise the legislative and administrative proposals for strengthening and streamlining of the registered chit fund sector. Further, the said Committee, in its thirty-fifth Report on the Action Taken by the Government on the recommendations contained in the twenty-first Report, has recommended the need to quickly firm up the legislative and administrative proposals for the chit funds sector.
The Chit Funds (Amendment) Bill, 2018 was introduced in Lok Sabha on 12th March, 2018. The Bill was referred to the Department Related Parliamentary Standing Committee on Finance on 27th April, 2018 for examination and report. The Committee submitted its Report on the said Bill on 9th August, 2018. Some of the recommendations of the Committee have been accepted and incorporated in the Chit Funds (Amendment) Bill, 2019.
Key proposals of Chit Funds (Amendment) Bill, 2019
In order to facilitate orderly growth of the chit fund sector, to remove bottlenecks being faced by the chit fund industry and to enable greater financial access to people, the Chit Funds (Amendment) Bill, 2019, inter alia, proposes the following, namely:—
(a) insertion of the words “fraternity fund”, “Rotating Savings and Credit Institution” in clause (b) of section 2 which defines “chit” and also in section 11, to signify its inherent nature and distinguish its working from “prize chits” which are banned under a separate legislation;
(b) to substitute the expressions “gross chit amount”, “share of discount” and “net chit amount” for the expressions “chit amount”, “dividend” and “prize amount” respectively in the Act, in order to remove confusion with respect to illegal prize chits;
(c) to revise the prescribed ceiling of aggregate chit amount from rupees one lakh to rupees three lakhs for individuals and from rupees six lakhs to rupees eighteen lakhs for firms, which have not been revised since 2001;
(d) to allow the mandatory presence of two subscribers, as required under sub-section (2) of section 16, either in person or through video conferencing duly recorded by the foreman;
(e) where the presence of the mandatory two subscribers is through video conferencing, the minutes of the proceedings to be signed by them within two days of the date of the draw;
(f) to increase the ceiling of foreman’s commission from five per cent. to seven per cent. under section 21;
(g) to enable the foreman to have a right to lien against the credit balance in
other non-prized chits;
(h) to amend clause (b) of section 85, so as to confer power upon the State Government to specify the amount by notification, upto which any chit fund shall be exempted under the Act
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