What is Meant by Franking Charges?

Knowing all the costs of purchasing a property is crucial when making home-buying plans. You must pay various fees to the government and organisations that facilitate the process, a processing fee, and legal costs in the form of taxes, including stamp duty and registration fees. Another expense that must be covered while purchasing a property is franking costs. Numerous modest and big payments might considerably raise the price of the property.

A franking charge is typically a cost levied by the lending institution or agency for stamping the title documents, which serve as a formal record of payment of the stamp duty and any other applicable taxes. Let us now see what franking charges are and what they mean.

What are Franking Charges?

The act of utilising a franking machine to stamp a property document is the definition of franking. Only authorised banks and agencies may help with the franking process, which involves stamping your legal documents or attaching a specified denomination to show that the transaction's stamp duty has been paid. You must pay franking stamp fees to the stamping authority to get your paper stamped.

Franking fees typically account for 0.1% of the overall purchase. A cost paid to the bank or agency for having the property papers stamped with a stamp that serves as a legal receipt for the payment of stamp duty is franking charges. Only the sub-office, registrar's authorised banks, and agencies have special machines called "franking machines" installed for use in the stamping process.

The law permits only a few banks and agents to install franking machines and provide the services. Additionally, franking services are only available on weekdays at specific times. Unquestionably, buying a home is a once-in-a-lifetime experience. To make wise decisions, one must be well-versed in financial and legal disciplines.

Why are Franking Charges Necessary?

One of the primary means of income for the government is stamp duty or franking charges. Any document must undergo stamping or franking, whether for a home loan or another connected use, to obtain legal validity and must get stamped by the appropriate state or federal authority.

When paying for this stamp duty through franking fees, it implies the stamp duty has been paid, and the document is now valid. The document is only accepted and granted legal validity when it is franked or stamped by the relevant authority.

How to Calculate Franking Charges?

The authority that does the franking of your documents, such as banks and agencies, must be compensated. State governments set limits for this sum, which varies from state to state. Depending on the property's value, some states charge a flat cost.

However, 0.1% of the total sale price of the property or the loan amount is the fee that the majority of states impose. Due to the tight relationship between franking charges and stamp duty, the latter frequently gets adjusted to include franking charges.

For example, if you have purchased a property worth Rs 80 lakhs, the franking fee will be Rs 8,000. Remember that this franking charges is a part of the stamp duty charges. If the applicable stamp duty in your area is 6.5%, you would need to indemnify 6.4% at the sub-registrar's office and the rest to the franking authority.

Documents Required for Franking Charges

You must print the agreement on pure white paper before franking it. Before the contract gets finalised or the paperwork is signed, you must take it to a franking agency or an authorised bank where you will fill out an application, pay the applicable stamp duty fee, and have the document stamped to reflect the fees.

What is The Process of Paying Franking Charges?

It is now necessary to frank the documents before signing them once all the essential information has been typed on a blank sheet of paper. To contact the relevant authority, you or the seller must fill out an application with the franking details.

Collecting franking charges and taking stamp duty are not available to all banks. However, the banks having authorisation will be limited in how many documents they can frank daily and will have a set daily limitation. You must contact the bank directly or through an authorised representative when it is open for business. Franking charges call for planning on the part of the authorities; hence a previous appointment with the relevant authority is advised. The bank through which you obtain the mortgage will give you precise information and representatives regarding particulars.

The individual or organisation paying the taxes (referred to as the payor) has three options for getting documents stamped: franking, non-judicial stamp papers, and e-stamping. The steps below must be followed to get franking charges documents:

• The payor must apply to a bank, postal facility, or other franking business authorised to acquire the stamped document.
• State-to-state variations in the internal franking process are possible. For instance, according to that particular state's stamp laws and regulations, the maximum value against a document may be signed may differ.
• Documents are stamped using a franking machine, which compares the document to a specific denomination. For instance, the Indian Post agency can only frank documents worth up to Rs. 999. The payor must then notify the agency in preparation for the franking of papers worth more than that amount.
• After the authorised institution or bank has approved the document, it is stamped by a franking machine. In this procedure, the document is stamped to show that the payor has properly paid the stamp duty.
• As a result, the stamped document or instrument becomes a legally binding document which can be used as evidence in a court of law.

Pros And Cons of Paying Franking Charges

Pre-embossed stamp papers and e-stamping are two other ways to pay stamp duty besides paying franking charges. Each of these approaches has pros and cons.

Online franking transactions are quick, secure, and simple, especially if cash or demand draft is used for payment. To minimise delays brought on by the franking quota restriction, you must be prepared and knowledgeable. As this article indicated, the issues with franking papers or even franking stamp papers are that the rules and fees are inconsistent between states.

Alternatives to Franking

Franking is one of the most widely used methods of paying the government your stamp duty. Purchasing pre-embossed stamp paper or utilising an electronic stamp are other payment options.

Finding pre-embossed stamp paper from authorised organisations and merchants in all denominations could be difficult. Furthermore, it is difficult for the typical individual to confirm the validity of the stamped paper.

Since it is a more dependable and secure method of paying stamp duty, e-stamping on online franking has grown in popularity. The transaction can easily get completed online using internet banking. Those without activated online net banking can utilise a bank challan to pay their stamp duty.

The franking process is only suggested when paying with cash or a demand draft while indemnifying franking charges. They differ from one another because different states have specific franking laws. In addition, quota limitations are problematic for the buyer as well.

Conclusion

Unquestionably, buying a home is a once-in-a-lifetime experience. To make wise decisions, one must be well-versed in financial and legal disciplines. Given its convenience and legitimacy, paying franking charges online, also known as e-stamping, has been adopted by more states since the pandemic that brought physical documents into the digital world. Soon, e-stamping may replace franking. It is owing to the simplicity of use and convenience that e-stamping offers, which will soon replace franking.

Understanding overhead expenditures, such as franking charges, is essential before purchasing your ideal property, and it will allow you to organise your budget effectively and make the best choice.