Stamping and franking charges on home loans: Know the difference

Stamping and franking are two different terms, but are often used interchangeably when it comes to home loan. 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.

What is stamping?

Stamping is the tax levied on legalising the documents for your home, such as mortgage papers or the sale of a property deed. According to rules laid down by the Indian government, you need to pay this tax to purchase a 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. Your mortgage papers carry this seal, stamped via a franking machine.

Earlier, stamp papers confirmed the payment of stamp duty. However, the government discontinued the practice because of forgery, misuse, and scams. Thus, franking became an alternative to confirming 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 after you pay the stamp duty and involves the process of stamping these legal documents as a confirmation of paid stamp duty.

Amount of the charge

Stamp duty is calculated on the total cost of property or home. You can use stamp duty calculator in order to calculate stamp duty. 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 the higher value between that stated in the agreement or that believed as the circle rate or ready reckoner rate by the state government. Therefore, women pay about 0.01% less as stamp duty in most states.

On the other hand, franking charges 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 take a home loan of Rs. 1.5 crore in Karnataka, your franking charges will be 0.2%. totaling Rs. 30,000.

Relevant agencies

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

Before applying for a home loan, check the franking and stamping charges for the state where you plan 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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