Buying a property in the best location is every home buyer's dream, but this dream seems to be exciting until you need to pay for it. When you buy real estate in India, along with the cost of the house, you are required to pay a handful of miscellaneous charges to the government of India and facilitating authorities in the form of taxes. This involves registration charges and stamp duty. But do you know that another type of cost needs to be paid during the property transaction, known as Franking Charges.
Well, most people who are new to the real estate market confuse stamping with franking, but both of these terms are technically different. So, with the help of this post, let's know in detail what franking charges mean, how it is calculated, its alternatives, and much more.
Meaning of Franking Charges
Franking charge refers to the fee imposed by the financing institution or any agency for stamping the real estate papers that serve as a legal proof of stamp duty payment and all other taxes levied on the property transaction.
You will be surprised to know that special machines called franking machines are used in the stamping process and are installed only in the office of the sub-registrar, authorised agencies, and banks. This machine contains a unique adhesive stamp that is affixed to the document.
Calculation of Franking Charges
It is important to note that the franking charges levied by the agents and financial institutions can differ from one State to another. While some states charge a flat fee, others levy a percentage of the sale value. In general, franking charges amount to 0.1% of the total property transaction value. For example, real estate in India is worth Rs. 40 lakh would attract Rs. 4000 as a franking charge. Overall, franking charges and multiple other charges can substantially increase the final property price.
Also, in many states, you can offset franking costs against the Stamp Duty. For example, if the Stamp Duty is 6%, the final tax paid after the franking charges will be 5.9% of the property value. This means that the franking stamp fee is a part of the stamp duty charges. However, this situation differs across States. Therefore, it is advisable to know the franking charges prevalent in the State where the real estate is located.
Process of Franking
Franking a document is done when all the clauses and necessary content are typed on a plain sheet of paper, and the property-related documents are ready for signing. The applicant needs to apply along with the details of franking. Once the authorised agents and banks do the franking stamp, the legal documents must be presented at the office of the sub-registrar for stamp duty payment and registration.
Are There Any Alternatives to Franking?
Franking is one of the common methods for paying stamp duty to the government. Some other forms of payment involve purchasing pre-embossed stamp papers or e-stamping.
The pre-embossed stamp paper might be challenging to get for all denominations from authorised vendors and banks. Apart from this, it is difficult for a layman to check the authenticity of the stamped paper. As a result, e-stamping on online franking has become famous, as it is a more safe, secure, and tamper-proof method of stamp duty payment. The transaction can quickly be done online using internet banking. In case you don't have online net banking activated, you can use a bank challan for stamp duty payment.
Franking is advisable only if the payment is made through demand draft or cash. However, if the franking rules are not uniform and differ from one State to another. Moreover, quota restriction also creates problems for the buyer.
Future of Franking in India
The future of franking in India is in danger. As more and more states in the country are adopting e-stamping, franking might be entirely replaced by e-stamping in the coming future due to its ease of authenticity.
Recently, many reports suggested that the Karnataka government might soon end physical franking of the documents and make e-stamping mandatory for the execution of the instruments like sale agreements, mortgages, and title deeds, in order to avoid franking and stamp duty frauds that impact the revenue of the government.
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