Query regarding Chitty case

This is a query related to an Income tax case I received.The party is an NRI and he invests in each month towards a chitty as contribution from his dubai bank account as he work there and the chitty amount gets accrued in an chitty a/c gradually..He paid for 25 months as contribution ie 2 years and later the party fully withdrawn the chitty amount in his indian savings bank account..

Can we shown the amount which he paid as contribution from his dubai bank account as expense from the chitty income which is credited into his indian savings A/C as chitty income becomes taxable while credited to an indian bank a/c.

Can full contribution amount be set off with the full withdrawn amount as both figures are same..

Hi Nirmal,

This is an insightful and nuanced case. Let’s break it down step-by-step from a taxability and ITR reporting perspective for an NRI investing in a Chitty (Chit Fund) from abroad.

🔍 Facts Recap:

The assessee is an NRI, working in Dubai.
He contributes monthly from his Dubai bank account to a Chitty scheme (for 25 months).
Eventually, he withdraws the full amount, and it is credited into his Indian savings account.
You’re asking:

Can the total contribution be set off against the withdrawn amount, treating the contribution as an "expense," so only the net (if any) becomes taxable?

🔎 Understanding Taxability of Chitty (Chit Fund) Income

🔸 1. Chit Fund Basics:

A Chitty (or Chit Fund) is a form of savings-cum-borrowing scheme:

You contribute monthly.
At some point, you receive a lump sum, usually less than total contributions (due to discount/bid amount).

🔸 2. Tax Treatment:

Contributions to Chit Funds are not deductible under the Income Tax Act.
Withdrawals, when made, do not get taxed as a whole. Instead:

Only the discount/income element (i.e., the difference between what you receive and what you contributed) is treated as income, usually under “Income from Other Sources”.

✅ What Should Be Taxed?

Let’s take an example:

Total contributed: ₹2.5L (₹10K × 25 months)
Amount withdrawn (maturity): ₹2.5L
👉 In this case, no profit/income, so no taxable income arises.

However, if:

Total contributed: ₹2.5L
Amount withdrawn: ₹2.8L
👉 ₹30K is considered income (gain) and should be shown under "Income from Other Sources".

📌 Key Point: Just because the final amount is credited to Indian bank account, does not make the entire amount taxable. Only the gain (if any) is taxable.

📝 Regarding Your Query:

“Can full contribution amount be set off with full withdrawn amount?”

✅ Yes, absolutely.
You can — and must — set off the full contribution against the withdrawn amount to compute any gain.

If withdrawn amount = contributed amount → No income, no tax.
If withdrawn > contributed → Only the excess is taxable.

And this applies even if the amount is credited to an Indian bank account — location of credit does not trigger taxability unless there's actual income.

📂 Supporting Documentation:

To avoid issues during assessment or scrutiny, maintain:

Chitty scheme statement from the chit fund company.
Proof of monthly contributions (Dubai bank statement).
Final receipt showing maturity/withdrawal amount.

✅ Final Answer:

Yes, the amount contributed by the NRI towards the Chitty can be set off in full against the amount withdrawn.
Only the net gain (if any) is taxable in India under "Income from Other Sources".
If there is no gain, then there is no tax liability, even if the full amount is credited to an Indian bank account.