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Stamping and Franking Charges on Home Loans: Know the Difference

  • Highlights

  • Stamp duty tax is applied on property papers

  • Franking ascertains that you have paid stamp duty

  • Stamp duty & franking rates vary across states

  • These charges are not covered by your home loan

Stamping and franking are two different terms, but are often used interchangeably when it comes to home loans. When you are buying a home, it is important to understand the difference between the two so that you know exactly what you are paying for and why.
Take a look at what they are.

What is stamping?

Stamping is the tax levied on legalising the documents for your home such as mortgage papers or sale of property deed. According to rules laid down by the Indian Government, you need to pay this tax to make your purchase of home or property legally valid or permissible in a court of law.

What is franking?

Franking is the seal that signifies that you have paid stamp duty. It is a stamp that is put on your mortgage papers via a franking machine.

Earlier, stamp papers were used to confirm that the stamp duty had been paid. However, they were forged, misused, and led to scams, due to which the practice was discontinued by the government. Franking was thus introduced as an alternative to confirm the payment of stamp duty.

Here is how the stamp duty and franking differ:

Nature of the charge
Stamp duty is the tax you pay to the Indian government to legalise the necessary documents required to complete the purchase of your home. On the other hand, franking happens only after you pay the stamp duty and involves the process of stamping these legal documents as a confirmation of paid stamp duty.

Home Loan

Amount of the charge
Stamp duty is calculated on the total cost of property or home. It varies from 3%–10%, depending on the state slab as well as the location and status of the property, your age and gender, and type of property. For example, the stamp duty in Mumbai is about 3%–5% of the property value. Here the property value is considered to be the higher value between that stated in the agreement or that considered as the circle rate or ready reckoner rate by the state government. Women pay about 0.01% less as stamp duty in most states.

Franking charges, on the other hand, range from 0.1%-0.2% of the home loan amount or 0.1% of the property value, capped at Rs.20,000 on the sale deed of the property. It also varies across states. For example, if you are taking a home loan of Rs.1.5 crore in Karnataka, your franking charges will be 0.2%. totalling Rs.30,000.

Relevant agencies
Stamp duty is paid at the time of registration at the office of the Sub-Registrar of Assurances who has jurisdiction of the place where your home is located. Paying stamp duty falls on you, as the buyer of the property. Keep in mind that not paying stamp duty will lead to a penalty, so ensure that you arrange for funds before you sign the agreement. When it comes to franking, only those banks or agents who have the official permission from the government can add the franking stamp to your sale deed and home loan agreement. Generally, these services are only offered for a few hours of the day and banks have a limit of the amount of franking work done on a given day. So, ensure that you or your broker arranges for these formalities to be completed within your chosen timeframe.

Before applying for a home loan, check the franking and stamping charges for the state where you are planning to buy the property. Remember, your home loan does not pay for these charges, so begin saving towards these charges in advance.

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