Whether you can even join
The threshold question is exchange control, and the answer is mostly no. Running or owning a chit-fund business is on the list of activities prohibited for foreign investment, so an NRI cannot put money into a chit-fund company. Subscribing to a chit as an ordinary member is also generally not allowed on a repatriation basis.
There is one narrow exception. An NRI may subscribe to a chit on a non-repatriation basis, through an NRO account, but only where the State government has specifically authorised that particular chit company to accept subscriptions from non-residents. That is a case-by-case, company-specific permission, not a general right, so most NRIs joining a chit are either relying on that specific authorisation or, more often, are technically in breach. So before the tax question even arises, it is worth confirming whether your participation is permitted at all.
The one-sided tax if you are in one
If you are a chit subscriber, the tax treatment does not favour you. Over the life of a chit you receive dividends, your share of the discount other members give up when they bid, and you make your contributions. Where your total dividends exceed what you contributed, that surplus is income, taxable as income from other sources under Section 56. The argument that a chit is a mutual arrangement and so not taxable has been rejected by the courts, so the surplus is assessable.
The other side is where it stings. When you bid early to take the pot, you forgo a discount, which is effectively a cost, a loss. For a subscriber who joined the chit as an individual parking surplus funds, that loss is generally not deductible, because there is no matching provision under the other-sources deductions and it is treated as a personal outgoing. It can be deductible for someone who joined the chit as a way of financing a business, as a cost of raising funds, but not for an ordinary investor. So the surplus is taxed while the loss usually is not, an asymmetry worth knowing. A practising CA confirms whether your chit participation is even permitted, taxes the surplus correctly, and takes the right position on any loss.