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THE CHIT FUNDS (AMENDMENT) ACT, 2019, FINANCIAL SECTOR - Coggle Diagram

- - - - Foreman’s Commission:
        
        It seeks to increase the foreman’s commission from 5% to 7%. Aggregate amount of chits: It increases the limits for chits conducted by individuals, and for every individuals in a firm with less than or more than four partners.
        
        Application of the Act:
        
        The Act does not apply to chits started before the act was enacted and chits where the amount is less than Rs.100. The Act removes the limit of Rs.100 and allows state government to specify the base amount over which the provisions of the Act will apply.
        
        Chit Funds
        
        • A chit fund is a type of saving scheme where a specified number of subscribers contribute payments in instalment over a defined period.
        
        • Periodically, one of the subscribers is chosen by drawing a chit to receive the prize amount from the fund.
        
        • The company managing the chit fund (foreman) would retain a commission from the prize amount every month.
        
        • Chit funds are legal and registered and are different from Ponzi schemes as well as unregulated deposits.
        
        Laws governing
        Chit Funds
        
        • Classifying them as contracts, the Supreme Court has read chit funds as being part of the Concurrent List of the Indian Constitution. Both the Centre and States can frame legislations regarding chit funds.
        
        More Informarion
        About Chit Funds
        
        • RBI and SEBI does not regulate Chit Funds.
        
        • States like Tamil Nadu, Andhra Pradesh and Kerala had enacted legislation (e.g The Kerala Chitties Act, 1975 and The Tamil Nadu Chit Funds Act, 1961) for regulating chit funds.
        
        • In 1982, the Ministry of Finance enacted the Chit Funds Act, 1982 to regulate the sector. The responsibility for enforcing the provisions of this Act lies with the state government.
        
        3 more items...
      - Substitution of Terms:
        
        It changes the names of ‘chit amount’, ‘dividend’ and ‘prize amount’ to ‘gross chit amount’, ‘share of discount’ and ‘net chit amount’ respectively.
      - • Chit Amount (Gross Chit Amount)
        
        – The sum of subscriptions payable by all the subscribers of a chit.
      - • Dividend (Share of Amount)
        
        – The share of the subscriber in the amount kept apart for running the chit.
      - • Prize Amount (Net Chit Amount)
        
        –The difference between chit amount and the amount kept apart for running the chit.