Services provided in relation to chit – 30% abatement granted
Government has granted a 30% abatement to Services provided in relation to chit. And the Notification defines “chit” as “Chit” means a transaction whether called chit, chit fund, chitty, kuri, or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount.”
Are Chit funds taxable under Service Tax?
CBEC had in Circular No. 96/7/2007-ST, Dated : August 23, 2007, clarified
Chit Funds are of two types, namely:-
(a) Simple Chit Funds: In this case, members agree to contribute to the fund a certain amount at regular interval. Lots are drawn periodically and the member, whose name appears, gets the periodical collection. No separate amount is charged from the members.
(b) Business Chit Funds: In this case, there is a promoter known as foreman who draws up the terms and conditions of the scheme and enrolls subscribers. Every subscriber has to pay his subscription in regular installments. The foreman charges a separate amount for the services provided. Some States prescribe a ceiling limit for the amount to be charged by such promoter for the services provided. Commission amount is retained by the promoter as consideration for providing the services in relation to chit fund.
Whether services provided in relation to chit fund is leviable to service tax under “banking and other financial services” or not?
(a) In the case of Simple Chit Funds, no consideration is paid or received for the services provided and, therefore, the question of levy of service tax does not arise.
(b) In the case of Business Chit Funds, cash management service is provided for a consideration and, therefore, leviable to service tax under “banking and other financial services”.
So, the Board thinks that, Chits are covered under “banking and other financial services”. But what is the value on which Service Tax is payable. Anyway, now on whatever the amount be, there is a 30% abatement.
As is the case with all hurried notifications, there is a major blunder here.
The Government wants this abatement to be included as Sl. No. 4A in the Notification No. 1/2006-Service Tax, dated the 1st March, 2006.
But dear Board, there is already a Sl. No 4A in the Notification; What happens to that now? Or will there be two serial Numbers marked 4A?
Why can't the Board put up all its notifications for scrutiny by the public?
Notification No. Dated: May 27, 2008