CHENNAI: As the Union government increased the GST on chit fund services from 12 per cent to 18 per cent, the All India Association of Chit Funds are against it. The members pointed out that this implementation will impact the middle -class people where they will be forced to borrow money at an interest rate of 60 per cent per annum.
The GST council in its 47th meeting held at Chandigarh in June has recommended to increase the GST on chit fund services from July 18.
While addressing the media at Chennai Press club on Tuesday, the general secretary of All India Association of Chit Funds, A Chitrarasu said that the service was useful for those who don't have access to formal banking facilities. The chit fund helps people in promoting financial inclusion.
"The savings are pooled and given to a needy person every month. The person wanting to take the chit amount fixes the rate of discount to be foregone by the person to get the money. But when the GST increases to 18 percent people with low income won't come forward, the numbers will decrease drastically," added Chitrarasu.
The chit fund customers like small business people, start-ups, self-employed people and the middle class people in general will be forced to borrow money from money lenders at interest rates ranging from 36 percent to 60 percent per annum. They will end up with more debt within a few months.
"Though this issue is raised to the government there is no response from their end. We want the anomaly in the levy of GST on chit funds to be corrected. This service should be totally exempted from the levy of taxes as it has been done in the case of other financial services, " said AR Umapathy, Treasurer.
Commenting on the other financial institutions, mentioning that they will get interest as the consideration for their services while the chit fund companies get for their services is called commission.