Chit Fund word has become very (in)famous recent times , but fact is that those companies who have duped the investors in West Bengal in recent years and now their owners behind bar were not actually running chit fund schemes , but a false and fraudulent schemes of deposits. The real chit fund schemes , well reglated under the Chit Fund Act and other state laws are very popular in South of India and also in Delhi . A very old statistic suggests that more than 10,000 such chit fund schemes are in India and Delhi alone may be accounting for more than 20% . The prime reason for its popularity of chit fund scheme is that it is easy to understand , and a sure shot of getting capitals by investing small amount of regualar monthly payments . This post is mainly on the taxation issues related to participation in a chit fund scheme .
What are the tax issues related to chit fund scheme?
Following tax issues are involved for a subscriber of chit fund scheme.
- Whether the dividend received from chit fund company taxable ?
- Whether the dividend is liable to TDS u/s 194A ?
- Whether the loss to a subscriber on completion of the scheme is allowed as business loss ?
- Whether the gain to a subscriber on completion of the scheme is taxable under I.T.Act ?
Each of the aforesaid issue is dealt separately below . But before , I proceed, I feel basic manner and certain terms related to running of a chit fund scheme should be explained. For this , reader should read , Watch the Video for knowing What is a chit fund scheme and how it works ?
Is dividend received from chit fund company taxable ?
The straight answer to this question is no , because the principle of mutuality , in general applies to such scheme.