Franking Charges: All you Need to Know in 2024

Franking in a bank is one of the most common ways to get commissioned banks or agents to stamp your legal documents. We explore the franking technique and the corresponding franking fees.

You must shell out various fees in the form of taxes to the government and facilitating agencies when you purchase real estate. This includes the tax on stamps and the registration fee. So what is franking? Franking charges are another expense that one must pay throughout the property acquisition. Although stamping and franking are sometimes confused, they are strictly distinct words.

Here is a complete guide to franking charges.

What are franking charges?

What is bank franking? Using a franking machine to stamp a property document defines Franking charges. Only commissioned banks and agencies can simplify the franking procedure by stamping your legal papers or affixing a specific denomination that indicates that the transaction’s stamp duty has been paid. Franking fees are typically 0.1% of the entire purchase amount. 

In other terms, a franking charge is a cost that one must pay to the bank or agency for stamping the property documents that serve as legal evidence of stamp duty payment.

Franking meaning

The word franking is derived from affranchir – a French word which means ‘free.’ In 1660, the House of Commons (British) demanded the free delivery of letters addressed or sent by its members as a privilege. In exchange for creating a post office, this was provided.

Today, franking papers is a method of stamp duty in which a commissioned bank or agency uses an automated franking machine to frank the documents. The device imprints a red mark or a specific denomination on the paper. The stamped record indicates that the consumer has paid the necessary stamp duty.

Before the introduction of franking, people used stamp sheets to confirm the payment of stamp duty. However, they were susceptible to misuse, manipulation, and fabrication, which resulted in several cons. As a result, the government ceased the practice and introduced franking machines.

Typically, the state government purchases and standardises the franking machines. They then distribute the credentials to banks or approved agencies.

Anyone desiring authorisation to use franking machines must submit a franking license application to a state government branch (often a superintendent of stamps or post office) and acquire the formal authorisation/license from them.

But what motivates private people or banks to get franking licenses? To frank papers, banks and commissioned franking agencies assess a franking fee.

Franking charges

Franking fees are the processing or operational costs that entities with franking licenses or approved franking entities assess for using franking machines. Every time a document is franked, the consumer pays a nominal fee.

State-specific franking fees differ. In Karnataka, the costs are 0.1% of the total stamp duty paid; however, in other states, such as Maharashtra, the fees are 3% of the total purchase price.

How are franking charges calculated?

An example of franking charges calculator: If a consumer purchased a house in Karnataka for 20 lakhs, the franking fees would be Rs 2,000. Franking fees are included in stamp duty. If the stamp tax in Karnataka is 8%, the stamp duty is 7.9%, and the remaining 0.1% is franking expenses.

The following are the factors that are taken into consideration by a franking charges calculator:

  • The market value of the property
  • The kind of property as well as the number of floors attached to it
  • The intended use of the property; residential or commercial
  • The exact location of the property
  • The age and gender of the owner of the property

Are franking charges applied on loan agreements?

Additionally, franking fees are applied to loan agreements. The percentage of modifications for this varies. Also, the franking charges calculator varies as per the state.

Is GST applicable on franking charges?

According to the 2017 GST Act, GST is not applied to judicial documents, including those sold by government agencies or commissioned sellers. Therefore, franking charges are exempt from GST. Similarly, it is not subject to TDS (Tax Deduction at Source).

What is difference between franking charges and stamp duty?

There is much ambiguity around the phrases’ franking costs’ and ‘stamp duties.’ The primary distinction is that stamp duty is a government-imposed levy on papers. On the other hand, the franking charge is a nominal fee paid to the franking authority for stamping the documents. The franking procedure occurs after the document’s stamp duty has been paid.

The amount of state stamp duty varies per state. The proportion varies by urban vs rural regions and gender within a state. Similarly, franking prices differ between states; in Karnataka, franking charges are only 0.1% of the transaction amount. In certain instances, franked documents resemble non-judicial eStamp paper.

For conventional stamping in the setting of agencies, stamp duty is often paid to the stamp paper seller when purchasing stamp papers, at the sub-office, registrar’s, or in real-time online for eStamping.

In contrast, franking fees are paid at approved franking agencies or banks. With government authorisation, the franking stamp can only be affixed to papers by a small group of banks or agencies.

To summarise the distinctions-

It is a government-imposed levy on legal papers and contracts. A franking machine is used to stamp a legal document and imprint a particular denomination.
This is a required fee for all legal papers. It is one of the stamp duty payment methods.
It is paid at the sub-registrar’s office. It is paid at authorised banks and agents.
eStamping is paid for online through official websites. eStamp paper has already been franked.
Depending on the state, stamp duty rates range from 4 to 10 percent. Franking fees are less than stamp duty and can range between 0.1% and 3%, depending on the state.

When should documents be franked?

Before signing the document, the customer must type all of the information and facts on plain paper and have it franked. They must fill out an application form with all their franking information and then contact the franking authorities.

Banks are given a quota for franking and are not allowed to frank any more documents beyond that. Customers must thus visit an approved bank at a specific time or contact an agency that can frank their documents.

Is franking preferable to alternative methods of stamp duty payment?

Customers who pay in cash or by Demand Draft (DD) can shell out Franking Charges fast. However, franking regulations differ from state to state and are not standard. It is best to utilise franking only when the customer pays in cash.

The buyer can also buy previously franked printed stamp materials or eStamp paper online. Because the expense of the stamp papers contains stamp duty, the buyer only needs to register and sign them. However, this is only applicable in limited circumstances.

One disadvantage of franking is that each bank has a limited quota. If a customer demands a currency denomination that exceeds the bank’s quota, they must notify the bank in advance to complete the transaction.

Stamp duty payment is not done in real-time and needs the consumer to visit the bank physically. Due to the limited quota, it is difficult to acquire many papers franked, risking document loss and fraud.

Other methods of stamp duty may have various drawbacks. Pre-embossed stamp paper must be purchased from a commissioned seller only, and there is no method for any individual to certify the vendor or the stamp paper. Also, pre-embossed stamp paper is challenging to get in all currency denominations.

E-stamping is an alternative to franking in which the consumer pays stamp duty online in real-time. SHCIL (Stock Holding Corporation of India Limited) retains all stamp duty payment records. SHCIL is the primary repository for all stamp duty transactions.

How does franking differ from eStamping? What is the preferable option between franking and eStamping?

E-stamp is safer and more inviolable than any other method of paying stamp duty. Only approved banks can produce online eStamp paper; regular citizens are not permitted to do it. Customers may transact online using net banking or with a bank challan.

Physical stamps and physical stamp duty payments are inconvenient at times. They are a lengthy procedure with a protracted TAT. Digital stamping is a more practical and convenient solution.

The eStamping method is as simple as transmitting the document to be stamped using a digitised stamping solution, choosing the amount, currency denomination, country/state, and other information about the stamp papers needed, paying stamp duty, and downloading the stamped document.

Here are the methods for paying stamp duty online:

  • Log in to a secure website to begin eStamping.
  • Make a stamp duty advance deposit.
  • Choose your state, first (and second, if appropriate), document number, currency denomination, stamp duty figure, and other particulars.
  • Share on the internet the eSamped document of your choice.
  • Download the verified file.

A reputable digital stamping vendor may complete these steps in about 10 minutes.

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