Chits

Chit s a mutually beneficial scheme where in a group of people contribute towards the chit value and one member from the group is given the prize amount and the dividends are distributed to all the other members. For Example if we consider a chit value of Rs.100000/- with 50 members in the group each member has to contribute Rs.2000/- where by (50 X 2000) Rs.100000/- is collected. The auction is conducted in which the members participate and the person who discounts the maximum is declared as the prized subscriber. If there are more than one participant for maximum discount the Successful Bidder will be determined by way of lottery. Where in, the tokens bearing the numbers allotted to the members is put into a box and one token is drawn by any of the member present in the auction and thus, the member whose number is mention on the drawn token will be declared as the Successful Bidder. 40% is the maximum bid allowed, which means a person foregoes Rs.40000/- and the balance Rs.60000/- is paid to the prized subscribers. Out of 40% discount 5% goes to the company towards company's commission for conducting the chit and balance of the discount amount is distributed equally amongst all members of the group. That is 35 % is distributed to all the members by which next month they have to contribute (Rs.2000/- - Rs.700/-) = Rs.1300/- only and Rs.700/- is declared as dividend for that month. When there are no maximum bidders, then the members will bid in the open auction and the person who bids the highest is declared as Successful Bidder. For Example: Suppose, in the 10th month the Successful Bidder was declared at 35%, then all members of the group will get a dividend of Rs.600/-each i.e. (Rs30000/-divided among 50 members) and each member has to pay Rs.1400/- towards Instalment. Therefore the members have to pay the instalment amount less the dividend, the dividends earned workout to be the interest on the Instalment payments made by the member. Successful Bidder is supposed to give the required sureties depending on the future liability of the chit. Only Non-Prized Subscribers whose payments are up to date can participate in the auctions. Every month there is a Successful Bidder who gets his prized amount on submission of required Guarantors. The prized subscriber has to continue to pay the monthly instalments till the termination of the chit. Those members who do not want to draw the chit can contribute to the chit and after the 40th month if there are no bidders for the auction, the auction is decided by lot among the Non Prized Subscribers and the Successful Bidder is paid the Prize Amount. They either have options to submit sureties or prefer Future liability deducted upon which balance amount is paid from the Prized amount. The dividend accrued for the 50 months are the returns on investment for the monthly deposit are made to their accounts

Registered chit funds are governed by the stringent provisions of the Chit Funds Act, 1982 and the money invested in these chits are very safe. The Chit Fund companies are required to keep an amount equivalent to 100% of the aggregate chit amount of all the chits conducted by them in fixed deposits with banks in the name of the Registrar of Chits for the entire duration of the chit.

In order start a new chit , the Foreman company (Moneyratna Chits Private Limited ) has to obtain Prior Sanction from the Registrar of Chits by making a security deposit equivalent to the Gross Chit Amount and the required forms/documents, including net worth statement as stipulated by the Chit Fund Act, 1982 and Kerala Chit Fund Act 2022 . The terms and conditions of the chit must be accepted by The Registrar of Chits and all the subscribers has to agree with it. The Foreman can only start sourcing the Chit Fund after obtaining the sanction from The Registrar.,Following receipt of the Prior Sanction, the Foreman can announce the launch of the Chit Fund and begin selling tickets.After selling all of the tickets, the Foreman will register the agreement with the Registrar and obtain the Commencement Certificate to hold the first auction.

Auctions are conducted in the branches where in the foremen declares the successful bidder. All non-prized subscribers who have paid their Installments up to date are eligible to participate in the auctions. In case the payment is made by cheque the cheque should have been realised one day before the auction date. It is upto the members to be present in the auction hall 10 minutes before auction time as verification has to be done by branch for signatures of members and identification of proxies and their Bid Authorization letters. During the first few months there will be more number of participants willing to bid at the maximum discount. This maximum discount is predetermined for each group and should not go beyond 40 % of Chit value. The maximum bid limit varies between 30% to 40% Out of which 5% of the chit value is the company's commission and the balance percentage is distributed as dividends equally among the members in the group. The member pays the next installment minus the dividend and the dividend amount is credited to his account. When there are more members for maximum discount their tokens are put in a box and one token is picked by way of lottery. The member who holds the ticket that is marked on the picked up token is declared as successful bidder who has to submit the required sureties depending on the Future Liability. When there are no maximum bid offers in the auction members can participate in open bidding during the auction time. When there are no maximum discount bidding members are supposed to participate in open bidding during auction time, which starts with a minimum 5% of chit value or any bid offer that has been given by a member prior to auction time. Members are supposed to bid in multiples of Rs.100/- from the minimum bid offer amount and the person who quotes the highest bid amount shall be declared the successful bidder by the foremen. If there are no offers above the bid offer the member who has given the highest amount as bid offer is declared as successful bidder. Bid offer is to be given to the office 24 hours prior to the day of auction in which one can mention the maximum bid amount that is acceptable to them. If a member is unable to participate in the auction the member can authorize some other person whose signatures has to be authenticated by the member. Generally member authorizes the family member or Development Officer's and Agents as proxies to participate in the auctions.

The Chit fund company does not invest the amount collected by it anywhere as all the amounts collected every month are paid to the prized subscribers and no money is left with the company except the commission that they are entitled to towards their remuneration

The Security and sureties are required in order to protect the interest of the non-prized subscribers. This will help in ensuring that the subscriptions are received regularly from the prized subscribers so that prompt payments could be made to the other subscribers also when they take the chit. IS THERE IS ANY TAX DEDUCTION AT SOURCE (TDS) IN CHIT TRANSACTIONS UNDER THE IT ACT 1961 Chit fund companies do not deduct Income Tax at Source as they do not pay any interest or dividend to the Subscribers.