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Franking charges on a home loan: What you pay & why

Franking charges on a home loan: What you pay & why

Summary 
Franking is the process of stamping a legal document using a franking machine. The amount charged for carrying out this process is known as franking charges. They are paid to certify that the applicable stamp duty has been paid on legal documents such as loan agreements and sale deeds. Franking charges vary from state to state and are usually a small percentage of the property’s value or the home loan amount. Understanding how franking differs from stamp duty and budgeting for it alongside other closing costs can help you avoid surprises during your home-buying journey.

Franking charges are the fees paid for stamping home loan or property documents through an authorized franking machine to certify payment of the applicable stamp duty.

You have compared home loan interest rates, arranged your down payment, and are almost ready to complete the paperwork. Then, just before the loan is processed, you notice another item in the list of charges – franking charges. Many homebuyers see this fee for the first time and wonder whether it is another tax or simply an extra cost added by the lender.

In reality, franking charges on a home loan are linked to the stamping of certain loan and property documents. They are legally valid under applicable state laws. Although the amount is usually small, understanding why it is charged can help you avoid confusion during the home-buying process.

In this article, we’ll explain what franking charges for home loans are, how they differ from stamp duty, the applicable rates, and how the franking process works. Keep reading.

What are franking charges?

To understand what franking charges are, you must first know the meaning of franking. It is the process of stamping a legal document using a franking machine to confirm that the applicable stamp duty has been paid. This stamping is carried out by an authorized bank or a government-approved franking agent on documents such as a home loan agreement or a property sale deed.

The amount charged for carrying out this stamping process is known as franking charges. While franking charges for home loans are usually small, they are part of the overall documentation costs of a property transaction.

Why do you pay franking charges on home loans?

Franking charges in a home loan are paid because certain loan and property documents must be stamped to show that the applicable stamp duty has been paid. This makes the documents legally valid and acceptable as evidence. Franking is usually completed when the loan and property documents are executed. It helps ensure compliance with stamp duty laws, avoids future legal or revenue-related issues, and allows the home loan process to move forward without delays.

Franking charges vs stamp duty: What’s the difference?

Many homebuyers assume that franking charges and stamp duty are the same, but they are not. Stamp duty is the tax payable on certain property and loan documents. Whereas franking charges for home loans are generally a small fee for carrying out the franking process and are usually adjusted against the total stamp duty payable.

The table below compares franking charges and stamp duty:

BasisStamp DutyFranking Charges
MeaningA government tax payable on specified property and loan documents.Charges paid for carrying out a stamping process, known as franking. 
PurposeMakes the document legally valid after payment of the prescribed duty.Provides proof that the required stamp duty has been paid.
Collected ByState governments.Authorized banks or government-approved franking agents.
AmountDepends on state laws, property value, and transaction type.Usually a small percentage or service charge, adjusted against the applicable stamp duty.

Franking charges rate: How much do you pay?

The amount payable as franking charges is usually a small percentage of the property’s value or the home loan amount. In many states, it is around 0.1% and is often subject to a cap. However, the exact rate is decided by the respective state government. Thus, it is not the same across India. For example, franking charges for home loans in Maharashtra may differ from those applicable in other states. In most cases, the amount paid through franking is adjusted against the total stamp duty payable on the document.

Also Read – Hidden charges in home loan 

What are the franking charges for home loans in Maharashtra & Mumbai?

Franking is widely used for property and loan documents in Maharashtra, including Mumbai. The franking charges for home loans in Mumbai typically range from 0.1% to 0.3% of the loan amount and are adjusted against the applicable stamp duty. Since the applicable rate and maximum limit are determined by the state government and may change over time, always verify the latest charges on the official Maharashtra Inspector General of Registration (IGR) or state stamp authority website before completing your transaction.

How to pay franking charges: The process

The exact procedure for paying franking charges on a home loan may differ slightly from one state to another. However, the process usually follows these steps:

  1. Visit an authorized franking center such as a designated bank, licensed franking agent, or the office of the Sub-Registrar.
  2. Submit the document that needs to be franked, such as the home loan agreement or property sale deed.
  3. Pay the applicable amount as per the state rules and the document value.
  4. Get the document franked using a franking machine.
  5. Complete the registration process by submitting the franked document to the relevant registration authority.

Franking charges and notary charges: Are they the same?

No. Franking and notary charges for home loans are two different expenses. Franking charges are paid to certify that the required stamp duty has been paid on a loan or property document. Notary charges, on the other hand, are the fees paid to a Notary Public for verifying, witnessing, or attesting documents and signatures. Although both may appear among your documentation costs, they serve entirely different legal purposes and are charged separately.

What are the other home loan closing costs?

Apart from franking charges in home loans, you should also budget for other expenses such as stamp duty, property registration charges, legal and notary fees, and the lender’s home loan processing fee. These costs are usually payable at different stages of the property purchase and can add significantly to your overall purchase price. Planning for them in advance can help avoid last-minute surprises.

If you are looking for financing options, you can also explore Tata Capital (HFL) Home Loans to make your home-buying journey smoother.

Also Read – What are Conversion Charges for Home Loans

Conclusion

Although franking charges for home loans are usually a small part of the overall cost of buying a property, they are an important expense to account for. They help certify that the required stamp duty has been paid and make your property documents legally valid. Since franking charges vary across states, it is always advisable to check the applicable rules in advance.

If you are planning to buy a home, you can also explore Tata Capital (HFL) Home Loans for convenient financing solutions.

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FAQs

What are franking charges on a home loan?

Franking charges on home loans are the fees paid for stamping home loan or property documents through an authorized franking machine. The stamp confirms that the required stamp duty has been paid on the document. This process helps make the document legally valid and is commonly completed before the loan documentation is finalized.

What is the difference between franking charges and stamp duty?

Stamp duty is the tax charged by the state government on certain property and loan documents. Franking is one of the approved methods of paying and recording that stamp duty. In simple terms, stamp duty is the tax itself, while franking is the process used to certify that the tax has been paid.

How much are franking charges for a home loan?

Franking charges are generally calculated as a small percentage of the document or transaction value. The exact amount depends on the rules of the state where the property is located. Since these rates may change, it is always a good idea to verify the latest charges with the relevant state authority before completing the documentation.

What are franking charges for a home loan in Maharashtra?

Franking is commonly used for property transactions in Maharashtra. The charges are generally calculated as a small percentage of the document value and are usually adjusted against the applicable stamp duty. As the state government may revise the rates from time to time, buyers should check the latest information on the official Maharashtra IGR website.

How do I pay franking charges?

You can pay franking charges through an authorized bank, licensed franking center, or another government-approved franking agent. After submitting the required loan or property document and paying the applicable amount, the document is stamped using a franking machine. The exact process may vary depending on the state.

Are franking and notary charges the same?

No, they serve different purposes. Franking charges relate to the payment and certification of stamp duty on legal documents. Notary charges are paid to a Notary Public to verify signatures or attest documents. Although both may appear during a property transaction, they are separate expenses.

Can franking charges be adjusted against stamp duty?

Yes, in states where franking is permitted, the amount paid through franking is generally adjusted against the total stamp duty payable on the document. Since the applicable rules differ from one state to another, it is advisable to confirm the latest provisions with the relevant state registration or stamp authority.
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