Income from chits

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2012 My brother is investing Rs.50000 every month from his savings in chits for a period of 40 months in the given case suppose he pays totally 17,00,000 for the period ended 40 months and he gets a lump sum amount of Rs.20,00,000 how to treat the difference amount of Rs.3,00,000 in Income Tax(ie taxability)?

In the contrary to the above case if he pays Rs.20,00,000 and gets only Rs.17,00,000 how to treat this difference amount assuming he has taken the amount in the 10 month

Thanks in advance

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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30 March 2012 the difference will be taxed as income from other sources in either case whenever received
CA MANOJ GUPTA
JODHPUR
09828510543

Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2012 What about taxability of Dividend on Chits received every month?

Kindly brief on point of taxation?

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Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2012 What about taxability of Dividend on Chits received every month?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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29 July 2024 ### Taxability of Dividend on Chits Received Monthly

Chit funds are a type of savings scheme where members contribute a fixed amount of money into a common pool periodically, and one member is chosen each period to receive the pool amount. The remaining members continue to contribute until all have received their share.

Here's a detailed look at the taxability of the dividend received from chit funds:

#### **1. Dividend on Chits:**
The term "dividend" in the context of chit funds is typically used to describe the amount received from the chit fund as a return or share of the pool. This is not a traditional dividend but rather a return from the investment in the chit fund.

#### **2. Tax Treatment:**

1. **For the Chit Subscriber:**
- **Receipt of the Prize Money:**
- When a subscriber receives their share of the chit fund (often termed as a prize or winning amount), it is generally **not considered taxable income** under the Income Tax Act. The prize money is viewed as a return on investment.
- **Monthly Contributions:**
- The amount contributed to the chit fund is treated as a regular expense and is not deductible.

2. **Interest or Return on Investment:**
- If the chit fund generates any interest or additional income (beyond the prize money), such income is taxable. However, in most chit funds, the primary return is the prize money, and there isn't a separate interest or dividend component.

3. **Chit Fund Income:**
- The chit fund itself is a registered entity and must comply with tax regulations applicable to it. The fund’s income is typically taxed under the head “Income from Other Sources” or “Business Income,” depending on its structure.

#### **Detailed Points:**

- **Taxable Amount:**
- The prize amount received from a chit fund is usually not taxable if it is simply a part of the return on your own investment. It is not treated as an income for tax purposes.

- **Documentation:**
- Ensure that all transactions related to the chit fund are well-documented. This includes contributions, receipts, and the amount received from the chit fund. Proper documentation can help in case of queries or audits by the tax authorities.

- **Tax Returns:**
- Although the prize money may not be taxable, it's always good practice to report it in the income tax return to maintain transparency. If you receive other types of income from the chit fund (like interest), it should be included under “Income from Other Sources” and taxed accordingly.

- **Professional Advice:**
- Tax laws can be complex and subject to change. For precise tax treatment and any specific issues related to your individual case, it’s advisable to consult a tax professional or financial advisor.

### **Conclusion:**

In summary, the dividend or prize money received from a chit fund is generally not taxable under Indian tax laws. However, if there are other sources of income related to the chit fund or if there are specific provisions or changes in tax law, these may affect the tax treatment. Always keep detailed records and consult with a tax professional for the most accurate guidance.