How Are Franking Charges Different From Stamp Duty On Home Loans?

Most home buyers, especially the first-time ones, tend to get confused between stamp duty and franking charge. These two terms are often used interchangeably and might create some confusion since there are many differences between the two. Thus, if you are not familiar with them, this article will help you understand the charges better. 

Buying a house might seem like a simple process at first sight- you opt for a home loan at an affordable rate of interest and pay it back in instalments over a fixed period. However, you need to realise that your expenditure is not limited to the property price you borrow or give to the builder. There are many other charges involved. This includes registration, stamp duty, and franking charges. 

What is a Stamp Duty? 

Stamp duty is technically a tax that the home buyer needs to pay in order to legalize the documents pertaining to the purchase. This might include the transfer of the property, mortgage, and sales documents. Stamp duty is in accordance with the tax laws that state that every home buyer has to pay the stamp duty for their property purchase to be legal in a court of law. 

There are certain important things to note about stamp duty. For instance, the charge differs from state to state. In India, the three most common stamping methods are franking, paper-based method, and e-stamping. 

What is a Franking Charge? 

Franking comes after paying stamp duty. It is basically a process of stamping your agreement which confirms that you have paid the stamp duty charges. In other words, when you visit a franking institution or bank, the respective officials affix a stamp or denomination on your agreement document. This is done with the help of a franking machine. The authority charges a certain amount for this process. It is called the franking charge. It is applicable for a home loan as well as property sale documents. 

Previously, stamp papers were used for this purpose. However, the Indian Government decided to discontinue it due to the growing rate of scams, forgery, and misuse. Thus, franking emerged as an alternative for confirming the stamp duty payment. 

Difference Between Franking Charge and Stamp Duty 

Type of Charge 

Stamp duty is the tax levied by the Indian Government on the relevant property documents that are required to legalize the purchase of your house. However, franking can take place only after you pay the stamp duty. It is basically a process of affixing a stamp on the legal property papers used for confirmation of stamp duty. Thus, the charge for this process is called the franking charge. 

Percentage of Charge 

Stamp duty is evaluated based on the total cost of your home. It typically ranges from three to ten percent. The charge depends on a number of factors, such as the location of the house, its type, status, the state slab, the home buyer’s gender, age, and so on. For instance, women generally have to pay around 0.01 percent lower stamp duty in the majority of states. On the other hand, Franking charges range from 0.1 to 0.2 percent of the loan amount or are equal to 0.1 percent of the home value. The maximum value is estimated at ₹ 20,000 on the total sale deed. Similar to stamp duty, the franking charge also varies from state to state. 

Requirement for Franking Charges

Stamp duty is a mandatory tax imposed by the government that has to be paid during registration. Failure to comply will result in a penalty. Franking, on the other hand, is an optional process. Nowadays, people either opt for e-stamping or purchase already-stamped documents. 

Respective Authorities 

You need to pay the stamp duty during the registration process in the Sub-Registrar of Assurances office that falls under your home’s jurisdiction. Failure in doing so leads to a fine. Franking, on the other hand, is conducted by banks that are authorized by the government. Please note that this service is generally provided for a few hours in the day only. Moreover, the banks also have a limit on the franking work done per day. Thus, you have to make sure that either you are able to complete the entire process within the fixed timeframe. 

Conclusion 

Before opting for a home loan, you need to be informed about every miscellaneous charge that is often overlooked by homebuyers. While most people are aware of stamp duty as a mandatory charge during home purchase, the majority of the banks fail to mention the franking charge that comes along with it. Thus, please make sure to check the stamp duty and franking charge of your state before applying for a home loan in order to have a smooth home buying process.