When buying a home, don’t forget to consider the financial aspect. There are many additional payments that can increase the price significantly, such as Registration Charges, Stamp Duty, Loan Processing charges, Technical Appraisal charges, Franking charges, etc. It’s crucial to understand what these charges mean to avoid any issues and ensure a smooth home-buying experience.
What is Franking?
Franking is a process that involves getting property documents stamped to indicate that the payment of stamp duty has been made. This stamp is provided by authorized institutions such as banks to prove the legality of the document. To get the Franking done, a Franking machine is installed in sub-registrar offices of different states in India.
Franking Charges
When purchasing property, it’s important to know that in addition to stamp duty, there is also a separate charge called the franking charge. Many buyers confuse these two charges, but they are distinct and we will explain their meanings in this article.
Benefits of Franking
If you’re looking for a way to save money and time on sending mail, consider using a franking machine instead of stamps. Here are some benefits of using a franking machine:
Reduced Costs: You only need to purchase postage once with a franking machine, instead of buying stamps for every letter or parcel. This can save you a lot of money in the long run.
Convenience: With a franking machine, you can quickly and easily prepare your mail for dispatch without having to go to the post office. This saves you time and energy.
Efficiency: A well-maintained franking machine will produce clean, consistent impressions every time. This makes it easier for postal workers to identify and sort your mail correctly, ensuring that it reaches its destination as quickly as possible.
Why Franking Was Introduced?
Frankin was introduced to stop the process of confirming payment of stamp duty by printing agreements on non-judicial stamp papers due to forgery, misuse, and stamp paper scams.
Difference Between Stamp Duty and Franking Charge
Stamp duty is a tax that you pay to the government when you buy or sell a property. It is a government charge that is applied to real estate documents like sale deeds and transfers of assets and properties. The amount of stamp duty you pay depends on the state you are in, and it ranges from 4 to 6 percent. You can pay it in person or online through the state portal at the sub-registrar’s office.
Franking is the process of having legal property papers stamped. To frank a document, you need to pay a small fee to the authorized bank or agent. This fee is called the franking fee. The franking stamp paper itself doesn’t cost anything, but banks have the right to charge up to 0.1 percent of the transaction value. These fees can be deducted from the amount of stamp duty that was paid.
Only authorized banks are allowed to frank stamp paper, and they can only do it for a certain number of hours each business day. It’s important to note that franking stamp paper is not the same as stamp duty. Stamp duty is the tax you pay to the government for authorizing the property transaction, while franking is the process of having the legal property papers stamped.
What is Stamp Duty?
Legal documents, such as sale deeds, power of attorney agreements, conveyance deeds, and other business agreements, need to be stamped to make them legally valid and binding. Stamp Duty is a tax imposed by the government on such documents. It is like a transaction tax that confirms the registration of the property in your name and legalizes your ownership of the property. Stamp duty is a significant source of revenue for the government. You can pay stamp duty by purchasing pre-embossed stamp papers, using e-stamp papers, or franking of stamps.
Franking Process in Banks
Before signing any documents, you need to frank them. This means you need to get a stamp from an authorized bank that shows you’ve paid the required stamp duty. Not all banks can do this, and the ones that can have a daily limit on how many documents they can frank. To make sure you can get your documents franked, it’s best to go to the bank early in the day or use an authorized agent. You should also make an appointment with the bank beforehand. Your bank will be able to give you more information about this process and provide you with authorized agents.
Franking Charges
When you get your documents stamped by banks or agents, you need to pay a fee called franking charges. The amount of this fee is decided by the state government and varies from state to state. Some states have a fixed fee, while others charge 0.1% of the property value or loan amount. Stamp duty and franking charges are closely related, and the stamp duty usually includes the franking charges, with the charges being deducted from the stamp duty.
In Maharashtra and Telangana, the franking charges are 0.1%. For instance, if you buy a property worth Rs. 80 lakhs, you will have to pay Rs. 8000 as franking charges. If the stamp duty in your state is 5.5% of the property value, you will only have to pay 5.4% as stamp duty if the franking charge has been paid. However, if you use other means of stamp duty payment, this adjustment will not be made. (Please note that the stamp duty rates vary across states and are subject to change, and the numbers used here are just examples.)
It’s important to keep in mind that most home loans do not cover stamp duty and franking charges. So, when selecting a home loan vendor, make sure you are prepared for these additional expenses.
Franking Charges on Loan Agreements
Franking is necessary for loan agreements and costs around 0.1% of the loan agreement, in addition to the charges for the property document. It helps to authenticate the documents and is equivalent to at least 0.2% of the loan agreement.
Franking of Documents
To frank a document, print it on plain white paper. Take it to a franking agency or authorized bank, pay a stamp duty fee, and get a stamp affixed to reflect the amount paid before executing or signing the agreement.
Calculation of Franking Charges
Keep in mind that franking fees vary between states. Therefore, the franking fees in Telangana are different from those in Maharashtra. Typically, it amounts to 0.1% of the purchasing price. For example, if you spend Rs. 40 lakhs on a property, the franking charge will be Rs. 4,000. Also, please keep in mind that the stamp duty fees include the franking stamp fee. Therefore, if the applicable stamp duty in your state is 6.5%, you would have to pay 6.4% at the sub-office registrar’s and the remaining to the franking authority.
Methods of Franking
Stamp duty can be paid in different ways, such as franking, pre-embossed stamp papers, and e-stamping. Each method has its advantages and disadvantages.
Pre-embossed stamp papers can be hard to find for all denominations and must be purchased from an authorized vendor, which can be difficult to verify and may lead to fraud cases.
E-stamp paper is a more secure and faster option than pre-embossed papers. However, cancelling an e-stamp paper can be complicated and may result in losses.
Online franking procedures are safe, fast, and easy, especially if cash or demand draft payments are made. However, regulations and charges for franking papers are not uniform across states, and avoiding delays caused by the quota limit for franking requires preparation and knowledge from your side.
Alternatives to Franking of Documents
Stamp duty is a tax that needs to be paid to the government when certain documents are signed. There are different ways to pay this tax, but the most popular one is through franking. This means the stamp is printed on the document instead of a physical stamp. Another way to pay is by buying pre-embossed stamp paper, but it can be difficult to find and verify its legitimacy.
Nowadays, e-stamping and online franking have become more popular because they are more reliable and secure. This method allows you to pay the tax online using internet banking or a bank challan if you don’t have activated online net banking. However, it’s important to note that franking is only recommended when paying with cash or a demand draft.
It’s also important to keep in mind that different states have different laws regarding franking, and there may be quota restrictions that could cause problems for the buyer.
Wrapping up
When buying a home, it’s important to consider all the costs involved, including franking charges. Many states are now moving towards e-stamping, which is a digital alternative to franking. This is because e-stamping is more convenient and accessible for everyone. To help you plan your finances, it’s important to understand these costs before starting your home search.
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