india

Updated: Nov 21, 2019 01:16 IST

A legislation to build a stronger mechanism to ensure transparency in the chit fund business was cleared by Lok Sabha on Wednesday, paving the way for better regulations in the business that has been marred with major scams.

The new bill stipulates monetary limit in funds, fixes the rate of commission of agents and fund managers and allow subscribers to join meetings via video-conferencing.

Piloting the bill, minister of state for finance Anurag Thakur said chit funds are legal and should not be confused with unregulated deposit schemes or ponzi schemes wherein several people have lost their money.

According to the bill, it is proposed to raise the maximum chit amount from ₹1 lakh to ₹3 lakh for those managed by individuals or less than four partners, and from ₹6 lakh to ₹18 lakh for firms with four or more partners.

The maximum commission for the ‘foreman’, who is responsible for managing the chit, is proposed to be raised from 5% to 7%.

Thakur also said, the legislation proposes to substitute terms like ‘chit amount’, ‘dividend’ and ‘prize amount’ with ‘gross chit amount’, ‘share of discount’ and ‘net chit fund’ respectively to give greater transparency and clarity in the scheme.

Chit funds have been at the centre of a few scams even involving political leaders.

The bill also removes the limit of ₹100, and allows the state governments to specify the base amount over which the provisions of the Act would apply, Thakur said.

Responding to various issues raised by members during the debate, he said chit fund subscribers can opt for insurance but the government cannot make it mandatory. On compensating poor people from money collected under the GST, he said that it was something which can only be considered by the GST Council.