Everything You Need to Know About Franking Charges

With numerous extra charges and long documentation processes, getting a home loan to build your dream house can be daunting. However, with proper preparation and deep knowledge of all property-related expenses, you can avoid getting into trouble due to a lack of appropriate documents. Many people confuse stand-duty charges with franking charges, but this is untrue. A franking charge is an affirmation cost for verifying that you have paid your stamp duty charge, and you can only do that using a specific machine. Home loan applicants must get this done via authorised banks and agents to ensure that this document serves as proof of payment for stamp duty, avoiding legal and tax-related issues.

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What is the Difference Between Franking Charges and Stamp Duty on Home Loan?

Stamp duty charges are a fee homebuyers pay to legalise their property purchase/ transfer under the Government of India. This amount can vary from state to state, and it is mandatory to make this payment, or else your home purchase process will be deemed incomplete. Franking charge, on the other hand, verifies the payment of stamp duty charges for homes purchased by taking a loan or via any mode.

These two are not interchangeable, and here is the official difference between franking charges and stamp duty charges:

Stamp Duty	Franking Charge
Stamp Duty is a tax levied by the government on any property-related transfer/ purchase.	A Franking Charge is a minimum charge you have to pay to an authorised body, which ensures the payment of the correct valued stamp duty.
This charge can vary between 4 to 6% depending on the state.	This charge may cost up to 0.1% or 0.2% of the property’s market value or rental amount.
You shall pay this tax to the sub-registrar’s office or the respective state online website.	This payment is to be made by authorised banks/ agents.
You must pay this duty by purchasing the appropriate amount of pre-embossed stamp papers or using e-stamp papers.	Banks have a limited quota for franking stamp papers daily, and you must make an appointment before paying via any mode.
It is mandatory to make this payment.	This payment is optional if the borrower makes a stamp duty payment using e-stamp papers, which requires no verification.

Importance and Benefits of Franking

Here are some of the advantages of Franking charges:

Legal Validity: Franking charges ensure that authorities have legally registered each property in the books and that such a document provides proof of ownership in case of any dispute.
Transparent Transactions: Franking enhances transparency in all loan transactions for properties and offers a legal record for all purchases. This transaction helps in court cases involving fraud or legal disputes.
Reduced Stamp Duty Costs: Franking requires just a one-time postage payment instead of buying stamped mail for each paper. This cost helps in quick mail dispatch using the franking machine, which is cheaper and more convenient. Banks also deduct the franking charge from the stamp duty costs, which can save quite a lot of the borrower’s money.

How to Calculate Franking Charges?

Franking charges for home loans differ in every state for different types of documents, which is a very nominal percentage of the property’s market value. On loan agreements, this amount is usually 0.1% or 0.2%. If you have taken a 30 Lakh loan for a home worth the same amount, your franking charge will be INR 3000.

Procedure for Paying Franking Charges

Here is the step-by-step guide to pay off your franking charges in any authorised bank/ financial agency:

Contact a bank to book an appointment for franking, as no agencies are authorised and can only make a couple of franking-related documents in a day.
Try to go to the bank through which you are availing the home loan, as they are familiar with the exact market value of your property.
Submit important documents, such as your property purchase agreement, rental agreement, identity proof, and stamp duty papers, to the respective department available on the bank premises.
The bank will calculate your franking charges (0.1% * property market value) and offer you multiple methods of payment for the same.
The bank will affix a franking stamp on the documents, implying that the buyer has paid the required stamp duty.
Keep your franked documents safe, as they don’t have digital copies and might be useful in legal disputes.

Legal Implications of Not Paying Franking Charges

The banking authority considers a stamp duty document legal only when it properly franks it. If it does not properly frank the documents, courts may regard them as illegal and unenforceable, even if stamp duty payments are correct. The government can also charge certain penalties for the non-payment of franking charges, perhaps a certain percentage of the stamp duty charges.

These can also trigger audits and investigations of government taxing authorities, with multiple incompleted property transfers and purchases. Banks might also cancel your home loan over the same issues, leaving a big financial burden for the borrower.

Is Franking Preferable to Alternative Methods of Stamp Duty Payment?

Franking is not mandatory; anyone can purchase e-stamp papers instead of physical ones. They will be much easier to document, and the borrower can save time and money by not franking the documents.

Yes, franking is much more preferable to alternative methods of stamp duty payment as:

Pre-embossed stamp papers of different values are difficult to find
One cannot verify the authenticity of these stamp papers without proper franking
Cancelling an e-stamp paper, which does not require verification, is much more difficult than returning the existing stamp papers.
Franking is exempt from any form of GST or TDS.
Online stamp papers can be disputed in court for validity but not franked loan documents verified by a registered authority.
Franking charges assure the banking authorities that you are the legal owner of the property for which you have taken a loan and will pay EMIs on time.

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