GST on Chit Funds

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Last Updated: 14th January 2026 - 03:05 pm

GST on chit funds is a key tax aspect that affects both investors and chit fund operators in India. Chit funds are savings-based financial arrangements where members contribute a fixed amount each month. These schemes are regulated under the Chit Funds Act, 1982, and require state government approval to operate.

How GST Applies to Chit Funds

GST does not apply to the total chit value collected from members. Instead, it is levied only on the commission earned by the foreman. The foreman manages the chit fund and provides related services. Under GST law, this commission is treated as a supply of service and falls under financial services.

GST Rate on Chit Fund Commission

Earlier, the GST rate on chit fund commission was 12%. This rate has now been increased to 18%. The tax is calculated only on the commission amount and not on the monthly contributions. As per law, the foreman can charge a maximum commission of 7% of the total chit value, and GST is applied on this amount.

Impact on Chit Fund Members

The increase in GST on chit funds affects the final payout received by the winning bidder. A higher commission means a lower net amount. It also reduces the savings for members who receive the chit amount at the end of the cycle. Over time, this may slightly increase the overall cost of borrowing through chit funds.

Input Tax Credit Rules

The 18% GST rate is charged only when the chit fund does not claim input tax credit on any goods or services used for running the chit fund. This rule must be followed to stay within GST laws.

Conclusion

GST on chit funds has changed how much these schemes cost. The higher tax can reduce the money members finally receive. Still, many people continue to use chit funds because they are easy to join and flexible. Knowing the GST rules helps both members and organisers make better financial choices.

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