Section 2 of the Chit Funds Act, 1982: Definitions
Section 2 contains the core definitions used throughout the Chit Funds Act, 1982. These terms determine how a registered chit is understood and how expressions such as "chit", "foreman", "subscriber", "discount", "gross chit amount" and "net chit amount" are applied under the Act.
Updated: 15 September 2026. Statutory position checked against the Central Act text and the Chit Funds (Amendment) Act, 2019.
Current amendment position: The Chit Funds (Amendment) Act, 2019 amended Section 2 with effect from 1 January 2020. Among other changes, it added the expressions "fraternity fund" and "Rotating Savings and Credit Institution", omitted clauses (d), (h) and (m), and inserted definitions of "gross chit amount", "net chit amount" and "share of discount".
What Section 2 means
The opening words, "unless the context otherwise requires", mean that the statutory definitions ordinarily govern the use of these expressions throughout the Act, but the context of a particular provision may require a different reading. The definitions are therefore the starting point for interpreting the regulatory duties and rights created by the Act.
Section 2 - Statutory definitions
(a) "approved bank" means the State Bank of India constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955), or a subsidiary bank constituted under section 3 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or a Regional Rural Bank established under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976), or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or a banking company as defined under clause (e) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), or a banking institution notified by the Central Government under section 51 of that Act or such other banking institution as the State Government may, in consultation with the Reserve Bank, approve for the purposes of this Act.
(b) "chit" means a transaction whether called chit, chit fund, chitty, kuri, fraternity fund, Rotating Savings and Credit Institution 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 such 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 net chit amount.
Explanation: A transaction is not a chit within the meaning of this clause if: (i) some alone, but not all, of the subscribers get the net chit amount without any liability to pay future subscriptions; or (ii) all the subscribers get the gross chit amount by turns with a liability to pay future subscriptions.
(c) "chit agreement" means the document containing the articles of agreement between the foreman and the subscribers relating to the chit.
Clause (d) was omitted by the Chit Funds (Amendment) Act, 2019 with effect from 1 January 2020.
(e) "chit business" means the business of conducting a chit.
(f) "defaulting subscriber" means a subscriber who has defaulted in the payment of subscriptions due in accordance with the terms of the chit agreement.
(g) "discount" means the sum of money or the quantity of grain which a prized subscriber is, under the terms of the chit agreement, required to forego and which is set apart under the agreement to meet the expenses of running the chit or for distribution among the subscribers or for both.
Clause (h) was omitted by the Chit Funds (Amendment) Act, 2019 with effect from 1 January 2020.
(i) "draw" means the manner specified in the chit agreement for the purpose of ascertaining the prized subscriber at any instalment of the chit.
(j) "foreman" means the person who under the chit agreement is responsible for the conduct of the chit and includes any person discharging the functions of the foreman under section 39.
(ja) "gross chit amount" means the sum-total of the subscriptions payable by all the subscribers for any instalment of a chit without any deduction of discount or otherwise.
(jb) "net chit amount" means the difference between the gross chit amount and the discount; in the case of a fraction of a ticket, it is the difference between the gross chit amount and the discount proportionate to that fraction. When payable otherwise than in cash, its value is determined at the time when it becomes payable.
(k) "non-prized subscriber" does not include a defaulting subscriber.
(l) "prescribed" means prescribed by rules made under this Act.
Clause (m) was omitted by the Chit Funds (Amendment) Act, 2019 with effect from 1 January 2020.
(n) "prized subscriber" means a subscriber who has either received or is entitled to receive the net chit amount.
(o) "Registrar" means the Registrar of Chits appointed under section 61 and includes an Additional, Joint, Deputy or Assistant Registrar appointed under that section.
(p) "Reserve Bank" means the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934 (2 of 1934).
(pa) "share of discount" means the share of the subscriber in the amount of discount available under the chit agreement for rateable distribution among the subscribers at each instalment of the chit.
(q) "State Government", in relation to a Union territory, means the administrator of that Union territory appointed by the President under article 239 of the Constitution.
(r) "subscriber" includes a person who holds a fraction of a ticket and also a transferee of a ticket or fraction thereof by assignment in writing or by operation of law.
(s) "ticket" means the share of a subscriber in a chit.
Key definitions in practical terms
Chit
A chit is a periodic contribution arrangement among a specified number of persons in which each subscriber becomes entitled, in turn and according to the agreed method, to the net chit amount. The statutory definition is important because the Act regulates transactions falling within this description irrespective of the name used for the arrangement.
Foreman
The foreman is the person responsible under the chit agreement for conducting the chit. The Act separately prescribes the foreman's rights, duties, security requirements, record-keeping obligations and other responsibilities.
Gross chit amount, discount and net chit amount
The gross chit amount is the total subscription payable by all subscribers for an instalment before deductions. The discount is the amount foregone by the prized subscriber under the chit agreement. The net chit amount is, in general terms, the gross chit amount minus the discount.
Subscriber and prized subscriber
A subscriber includes a holder of a fraction of a ticket and a transferee by written assignment or operation of law. A prized subscriber is a subscriber who has received, or has become entitled to receive, the net chit amount.
2019 amendment to Section 2
The Chit Funds (Amendment) Act, 2019 modernised terminology used in the Act. The amendment expressly recognised the names "fraternity fund" and "Rotating Savings and Credit Institution", omitted outdated clauses and introduced the concepts of gross chit amount, net chit amount and share of discount. These changes came into force on 1 January 2020.
Related provisions
For the operation of these definitions in context, see Section 3 - Act to override other laws, memorandum and articles, Section 4 - Prohibition of chits not sanctioned or registered, Section 6 - Form of chit agreement and Section 7 - Filing of chit agreement.
