Know the Difference Between Stamp Duty and Franking Charges on a Home Loan

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Home Loan

Home loans can help individuals to buy the real estate property of their choice. The home loan amount is repaid by the borrower during the tenure of the loan. Many think that the EMI amount and the processing charge are the only costs incurred for a home loan. However, a home loan will also incur stamp duty, franking, and other expenses. Customers should know the costs that come with housing loans. It will help them analyse the overall cost of their housing loan. Often, people are confused between stamp duty and franking charges for housing loan. Franking charges and stamp duty are inter-related but are not used interchangeably. Read on to understand the differences between stamp duty and franking charges for a housing loan.

Understanding the concept of stamp duty for a housing loan

For buying a home, individuals have to complete the standard documentation process. For example, a sales deed is a document used during the home buying process. It contains the names and other details of the buyer and seller. Similarly, other documents are prepared to legalize the transfer of a property or an asset. These documents are legalized during a home loan process. It means getting the consent of the law that these documents are original. The legalisation of such documents is completed after the stamp duty is paid.

After stamp duty on home loan, individuals can prove that their real estate property is valid/legal. Without any exception, stamp duty on home loan is mandatory for all home loan applicants. The charges for stamp duty can vary from one city/state to another. Stamp duty charges depend on the average real estate costs in the locality. These are fixed and pre-decided by the local governments. For example, the stamp duty charge in Mumbai is 5% of the total cost of the real estate property. The authorities can also decide to change the stamp duty charges over time.

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Understanding the concept of franking for a housing loan

As discussed above, stamp duty is a tax charge to legalise real estate documents. The franking charges are closely related to the stamp duty for a home loan. In simple terms, franking is a stamping process that indicates the stamp duty charges are deposited with the respective authorities. Where the stamp duty on home loan can be 4-5% of the total cost of the property, franking charges will only be around 0.1% of the total cost. Franking signifies that all home documents are authentic, accurate, and updated.

A franking machine is used to affix the paperwork. In this process, the franking machine engraves a stamp of the denomination on the property documents. Individuals must pay franking charges for a home loan and sale documents separately. Franking charges are dynamic and can change from one state to another. However, it usually is around 0.1% of the total cost of the real estate property. Without franking charges, it cannot be determined whether the individual has paid the stamp duty charges or not.

The dissimilarity between stamp duty and franking charges

Stamp duty is counted as a tax component imposed by the government to legalise property documents. On the other hand, franking is a stamping practice that indicates the stamp duty charges are submitted by the concerned individual. Besides franking Charges, e-stamping and paper-based stamping methods are also used for property documents. However, most people prefer franking as it is a quick and secure stamping method.

Since franking charges on home loan is a stamping process, it is carried out by authorised organisations. On the other hand, stamp duty charges are deposited at the time of property registration. Note that  stamp duty charges will always be substantially more than the franking charges. Also, stamp duty on home loans is deposited once during the registration process. Franking charges are deposited separately for sale-related documents and a housing loan.

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If the stamp duty is deposited, getting your documents affixed will not be a problem. Franking is proof that stamp duty charges for a real estate property have been paid. The location of the real estate property will play a role in stamp duty and franking charges. It happens because both charges vary according to geographical location.

Know your home loan charges

Stamp duty and franking charges are compulsory for everyone. It is better to know these charges before applying for a home loan. Choose a reputed lending institution like Grihashakti for full transparency and the lowest home loan interest rates!


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