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Tax treatment from chit funds

Praveen Athanki (PM) (62 Points)

01 May 2012  

Hi,

I am planning to invest a small portion of money in chit funds

1. What is the tax treatment on income from chit funds?

2. How to calculate income from chit funds as the monthly installment will vary sometimes?

Regards,

Praveen


 5 Replies

SathikondaA (Tax Consultant) (1346 Points)
Replied 01 May 2012

Mr.Praveen Athanki There two methods to offer the income from chit fund to income-tax.

First Method: Offer the dividend you receive from month to month to tax.

Second Method: Offer the difference between the amount you paid and the amount you received to tax if the amount received by you is greater than the amount you paid.  If the amount you received is lesser than the amount you paid it is a loss.

Best Wishes

Sathikonda

1 Like

Praveen Athanki (PM) (62 Points)
Replied 02 May 2012

Thank you Mr.Sathikonda. You answer is very helpful

Regards,

Praveen

SathikondaA (Tax Consultant) (1346 Points)
Replied 02 May 2012

Mr.Praveen Athanki

The second method can adopted only after completion of the chit. Till then the amount paid by you is treated as investment and if you bid and receive the bid money the money received by you is treated as an advance/loan in the books of account (in case if you maintain books of account).

If you contribute the chit out of the business funds for the purpose of the business the loss incurred on bidding or on closure of the chit (in case the money received is lesser than the money you paid) the said loss can be treated as business losss. AP High Court has accepted the loss as a business loss.

Best Wishes

Sathikonda

1 Like

CA Mohit Garg (CS Student) (212 Points)
Replied 20 September 2012

Mr Sathikonda,

If someone invest in chit fund, in instalment which is not of equal amount, Say he paid total rs. 90000 in instament & received 95000 athe end of 20th month.

Than how to tax rs. 5000/-, And in what it is to be show in case of individual.

I'm thinking of In income from other sources.

And 5000/- is to be taxable in the poretin of instalment paid & total required to be paid.

Pls reply

 

 

satish pillai (chief engineer) (23 Points)
Replied 24 February 2019

Hi.. i recd my chitti amount before the completion of tenure... i will still be paying the monthly contribution... kindly advice how the tax element is calculated...my chitti is 80 months for 10 lac.. i recd 954000 .. of which one lac was kept my the chitti grp as monthly for the rest of the tenure..therefore i recd only 841000... difference being the sundry chargers... kindly advice my tax liability...till now i have pid around 732000

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