The Central Government has issued notification. No. 27/2008-ST dated the 27th May, 2008, amending notification No. 1/2006-ST dated the 1st March, 2006, prescribing abatement in lieu of CENVAT Credit for the purpose of payment of service tax for the services provided in relation to Chit.

Chit is also known as chit fund, chitty, kuri. The person who is conducting the chit fund is known as foreman and is entitled for a commission. Subscribers of a chit are required to subscribe a certain sum by periodical instalments for a definite period. Each subscriber is entitled to the chit amount as determined in an agreed manner by turns with the liability to pay future subscription. Administration of chit is governed by the Chits Funds Act, 1982.

Services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern in relation to asset management including all forms of fund management, is leviable to service tax under "banking and other financial services" [section 65(105)(zm) and section 65(12) of the Finance Act,1994]. Services provided in relation to chit falls under taxable service "banking and other financial services".

All India Association of Chit Funds has requested to prescribe abatement in lieu of input credit of taxes paid under CENVAT Credit Scheme. The request of the Association was examined by the Advisory Committee on Service Tax Abatements and based on the recommendations of the Advisory Committee on abatements. The Central Government has notified the abatement rate of 30% of the value of the taxable services i.e, commission earned by the person conducting the chit fund business. Provider of services in relation to chits opting to pay service tax availing abatement is required to pay service tax on 70% of the commission charged without availing input credit under CENVAT Credit Scheme.

For details notification No. 27/2008-Service Tax, dated the 27th May, 2008, may be referred to.

BSC/GN-130/08

Service tax on chit fund commissions: abatement allows tax on a reduced portion of commission without CENVAT credit. Services in relation to chit funds are taxable under banking and other financial services; the Government notified a 30% abatement on the value of the commission charged by the person conducting the chit, and providers opting for this abatement must pay service tax on the remaining 70% of commission without availing input credit under the CENVAT Credit Scheme.