Reiterating their long-pending request for modernisation of legislation for their industry, the All India Association of Chit Funds (AIACF) has made a plea to the Centre for minimal levy of GST on the industry for the survival of the sector that serves the lower and middle income households.

Addressing a press conference here, members of the Incorporated Chit Funds Association (ICFA), which is part of AIACF, pointed out that conversion of service tax to GST would add to the woes of the chit fund industry.

They urged the government for a levy of sub-5 per cent GST rate in order to help the sector, which works on a saving-cum-borrowing model, in which participants advance a particular sum of money to one of the participants among them. Chit fund firm acts as a foreman to bring together the subscribers and conduct the auction.

While all other financial services such as loan providers, equipment leasing, hire purchase finance and mutual benefit financial companies in the NBFC sector have abatement/ exemption from service tax, chit fund firms are not exempted.

The effective rate of service tax is about 10 per cent for chit fund firms.

“The conversion of service tax levy to double digit GST rate will be a death knell for this traditional financial intermediary segment,” said TS Sivaramakrishnan, General Secretary of AIACF, arguing that chit funds were more of a self-help group for lower and middle income households and was not a service that could be taxed.

“We have requested the government to keep us at par with NBFCs at least in the matter of taxation. RBI has recognised us as NBFC. Even officials of Ministry of Finance have also recognised. But parity has been denied so far,” said A Chitrarasu, Secretary, ICFA.

Its other suggestions include permission to use words other than chit fund in company names, nod for conducting fee-based businesses such as cross-selling of insurance products, rating mechanism and grievance redressal mechanism, among others.

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