Section 2(2) in Andhra Pradesh Chit Funds Act, 1971
(2)"chit" means a transaction, whether called chit fund, chitty or by any other name, by which its foreman enters into an agreement with a number of subscribers that every one of them shall subscribe a certain sum of money or a certain quantity of grain or other commodity, by installments for a definite period and that each subscriber in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement, shall be entitled to a prize amount, whether payable in cash, kind or any other article of value.Explanation. - A transaction is not a chit within the meaning of this clause, if in such transaction, -(a)some alone, not all, of the subscribers get the prize amount without any liability to pay further subscription ; or(b)all the subscribers get the prizes by turns with a liability to pay future subscriptions if the prize winner is not entitled to get the prize amount.Illustrations(a)A starts a chit with 200 subscribers each of whom pays a monthly installment of Rs. 10 for 124 installments. One prize is drawn every month upto the fortieth installment and thereafter two prizes every month until all the sub-scribers get their prizes. Out of total monthly collection of Rs. 2,000, Rs. 200 is set apart for discount and the prize winner is paid Rs. 1,000. The foreman is allowed the use of the balance of Rs. 800 until the same is required for payment to the prize winners. The transaction is not a chit.(b)There are 100 subscribers to a chit and the subscription by each of them is Rs. 10. All the subscribers get by turns Rs. 1,000, being the whole of the chit amount and are liable to pay future subscriptions. The transaction is also not a chit.
