Franking charges on Home loans

When you apply for a home loan, there are many hidden expenses that the buyer might have to incur, franking charges is one of them. Here is a brief explanation of franking charges on home loans to help you understand better.

What are the Franking Charges?

Franking is the process of confirming that you have paid the stamp duty on your home loan. Previously, documents printed on non-judicial stamp papers used to act as proof of stamp duty payment. The government introduced the franking system to eliminate the frauds that were caused by using counterfeit stamp papers. 

Franking applies to your home loan agreement and property sale documents. You need to submit your home loan agreement, printed on plain paper, to an authorized bank or franking agency. They will then apply the stamp using a franking machine. 

How are franking charges calculated?

The charges for franking vary across the states. Usually, it is 0.1% of the purchase value. For example, if you have purchased a property worth Rs. 50 lakhs, the franking fee will be Rs. 5,000. Please remember that this fee is a part of the stamp duty charges. 

Difference between Stamp duty and Franking Charge

• Stamp duty is the tax that makes the property documents legally valid. On the other hand, franking charges are levied for certifying that the buyer has paid all the applicable taxes.
• Stamp duty is paid to the Sub-Registrar of Assurances. On the other hand, franking charges are paid to the banks or agencies who are giving franking services to the home buyer.

Please note that your home loan will not cover the stamp duty and franking charges. You need to pay these additional charges out-of-pocket. So, it is advised to arrange your funds accordingly.

Some important facts about franking charges

• As per the directive issued Reserve Bank of India (RBI) in 2015, banks will include stamp duty, registration, and other document-work-related charges while calculating the loan eligibility of the borrower's loan eligibility where the cost of the property is up to Rs. 10 lakhs.
• All authorized banks or franking agencies may not follow the same rules for franking and charges involved in the process. The rules might differ from one state to another state or from one bank to another or from one agent to another within the same state.
• Banks have a limited franking quote and offer the services only for certain hours of a working day. Moreover, it is important to verify if the bank or agency is authorized to provide franking services.