CHENNAI: The All India Association of Chit Funds, a national body representing chit fund companies, has sought the Ministry of Finance, Government of India, to grant GST exemption for consideration that chit fund companies receive from the chit group members for the financial services provided.
The office bearers of the association met with Union Finance Minister Nirmala Sitharaman in Chennai recently, and submitted their demand that consideration received by chit fund companies be granted the same GST exemption as the interest amounts received by other non-banking financial companies and banks.
The association has also urged the Centre to update the Chit Funds Act of 1982 to align with current trends and called for the creation of a separate classification for chit fund companies as NBFC-Chit Funds, similar to the existing NBFC-MFI classification for microfinance institutions. The association also urged the finance ministry and the regulator to ensure that new-age banks do not shy away from opening current accounts for chit fund companies.
The office bearers were: VC Praveen, president; A Chitrarasu, general secretary; AP Arunachalam, treasurer, and DC Elangovan, chairman, Advisory Committee.
Praveen explained that banks and financial companies receive interest from their customers as consideration for the services they provide, and these interest amounts are fully exempt from GST. However, considerations received by chit funds in the name of commissions or fees are subject to an 18 per cent GST. “This is an anomaly. This levy reduces the returns on savings and increases borrowing costs for customers. Therefore, we are seeking GST exemption on these amounts. It may not even require a new notification, as the exemption for financial services is already covered in the existing notifications. We believe just a clarification would be enough to extend this exemption to chit fund services.”
However, he clarified that, similar to banks and financial companies that pay 18 per cent GST on other charges such as passbook and cheque book issuance fees, DD charges, and bank guarantee fees, chit fund companies are also paying the same GST on admission fees, verification charges, and legal charges they collect for providing additional services.
Chitrarasu said as per RBI, chit funds, like finance companies, are also classified as non-banking financial companies (NBFCs). Chit fund companies provide financial services by gathering savings and lending money. They mobilise savings exclusively from members of a chit group and then lend funds to those in need within the group. This unique financial instrument blends both saving and borrowing, essentially functioning as a hybrid financial tool. Chit funds promote financial inclusion, particularly for the middle class, by offering opportunities to both save and borrow.