New to banking and don’t know about Demand Draft then this article will help you understand what Demand Draft is and its use.
The banking system is an integral part of our lives.
Typically, banks are used for depositing cash and valuables, making cash withdrawals, for payment of bills, transferring money from one place to another, purchase or sale of products and services, booking of tickets, etc.
These activities are performed by using ATM, Net Banking, Cheques, and Demand Draft.
Today we share with you one of the important banking instruments known as Demand Draft.
By going through this post, you would come to know everything related to Demand Drafts. We will let you know: What is Demand Draft, Demand Draft Charges, and so on.
In fact, Demand Drafts were one of the prime instruments used for making payments. One of the biggest highlights of Demand Drafts is that they cannot be dishonored.
The transfer of money is guaranteed. This feature alone makes Demand Draft to be used for making job applications, examinations, admissions, services, and high amount purchases.
What is Demand Draft?
A Demand Draft (also known as DD) is a prepaid negotiable instrument.
In a Demand Draft, the drawee bank undertakes to make payment in full when the demand draft is presented by the payee for payment.
It is made payable on a specified branch of a bank at a specified center. In a demand draft, the transfer of money is guaranteed. A Demand Draft is valid for three months.
Typically, a Demand Draft has the following details:
- The name of the bank branch which issues the DD.
- The name of the person or organization that is authorized to receive the payment.
- Date of issue of DD.
- The amount payable to the party in words.
- The amount payable to the party in figures.
- The branch of bank which pays the amount
- DD Number
- Authorized Signatures of the officers of branch issuing the Demand Draft.
For obtaining the payment, the beneficiary can deposit the DD in his bank account or can get the same collected through the branch that made the DD.
While making a DD, the amount is deducted from the bank account of the person who has requested the DD and deposited in their account.
When the DD is presented for clearing, the bank branch makes the payment for the person or company whose name is written on the DD.
However, it is not mandatory to have a Bank Account in the Bank from where you make the DD. A Demand Draft can also be made by paying the Bank in cash.
That said, for Demand Draft of more than Rs. 50,000, the payment needs to be made by cheque only. One needs to quote the PAN No. if the value of DD is more than Rs.50,000.
Typically, a demand draft is prepared in the Indian Currency, i.e. Rupees. However, if you require making payment in foreign currency, the demand draft can be made in foreign currency, as well.
Crossed Demand Draft
A Crossed Demand Draft is termed as Account Payee and cannot be encashed over the counter from Bank Branch. It can only be cleared by depositing in the Bank Account of the person who is entitled to receive the payment from DD.
However, if the Demand Draft is not Crossed, it can be encashed over the counter from the Bank Branch without depositing it the Bank Account.
A Crossed Demand Draft ensures that the payment is made only to the person in whose favor the DD has been made and not to any other person.
The payment gets deposited in the Bank Account of the person in whose favor the DD has been drawn. So, the payment is cleared using an Account.
According to RBI Notification, all DDs exceeding Rs.20,000 need to be crossed mandatorily.
Demand Draft vs. Cheque
While Demand Draft is a financial instrument that is payable on demand, a cheque is a negotiable instrument. Cheque contains an order to the bank to pay the specified sum from the drawer’s account to the holder of the instrument.
There are three parties to the cheque
- Drawer (the one who makes the cheque)
- Drawee (the Bank on which the cheque is deposited)
- Payee (to whom the amount of the cheque is payable)
Key Differences between Demand Draft and Cheque
- Demand Draft is always to be paid to the order of a certain person whereas a cheque is payable either to order or bearer.
- A Demand Draft cannot be dishonored due to pre-payment of the amount. However, a cheque can be dishonored due to insufficient balance.
- A DD is issued by the bank itself while the cheques are issued by the customers of the bank (who have a bank account).
- The facility of cheques is available only to the account holders of the bank, while Demand Drafts can be prepared by account holders as well as non-account holders.
- Cheques are used to make payment in a safe and easy mode while demand drafts are used to transmit money from one place to another.
- There are no bank charges on Cheques whereas, in the case of DD, there are specific bank charges depending upon the DD amount.
How to make Demand Draft (DD)
Demand Draft can be made by visiting the bank.
You can pay by cheque if you have an account in the bank.
Else, you can pay by cash.
However, Demand Draft can be made online also.
In case, you visit a bank’s branch for Demand Draft; you can get the DD within 30 minutes. However, if you order online, it would take few days and would be delivered to your correspondence address.
You need to visit a bank and ask for the demand draft application form.
You need to fill the demand draft application form.
You can even fill the form online.
You need to fill details such as the mode in which you want to pay, i.e. cash or from your account via cheque. You have to mention the name of the beneficiary, the amount, the place where DD will be encashed, your bank account number, your signature, etc.
The form needs to be submitted at the appropriate counter in the bank branch along with the applicable charges. The charges are bank specific and vary from one bank to another.
If the DD Amount exceeds Rs. 50,000, you need to submit your Pan Card details, as well.
When you fill details for DD online, you can choose to collect the DD in person from your branch, or can get it delivered through courier. It takes few days to get it delivered through courier. The bank can charge for courier.
Demand Draft Charges
Typically, Demand Draft Charges differ from one bank to another. As such, there are no standard charges for making a DD. Moreover, Demand Draft Charges vary with the value of the Demand Draft.
Usually, DD Charges vary from Rs. 1.50 to Rs. 4.00 per thousand plus Service Tax. However, in case the value of Draft is small, the banks may charge flat fixed charges.
To make things more clear to you, here we have shown Demand Draft Charges in SBI:
SBI Demand Draft Charges
For value up to Rs. 5,000/-: Rs. 10/-
For value above Rs. 5,000/- & up to Rs. 10,000/-: Rs. 41/-
For value above Rs. 10,000/- & up to Rs. 1 lac: Rs. 3/- per thousand or part thereof, with a minimum of Rs. 51/-
For value above Rs. 1 lac & up to Rs. 5 lacs: Rs. 3/- per thousand or part thereof, with a minimum of Min. Rs. 306/-
Cancellation of Demand Draft
In case you want to cancel the demand draft, then you have to visit the bank branch from which you made the DD. There is the online procedure for the cancellation of DD.
Two scenarios can arise:
1. If you got the DD by a cash deposit, then you have to submit the original DD along with the cash payment. The DD amount will be immediately refunded to you with some deduction of the amount.
2. In case you got the DD by making payment from your account, then you need to submit the original DD with cancellation form. The bank will refund the amount with some cancellation charges.
However, in case you have lost the original DD, then you have to sign Indemnity Bond in Stamp Paper for the Bank. Usually, the amount is refunded within one week. However, some banks may take time until the expiry date of DD.
If Demand Draft gets expired
In India, a DD is valid for a period of three months from the date of issue. If it is not presented within this period, the demand draft gets expired and will not be valid.
Then the person who requested the DD to be made, the purchaser, should approach the concerned branch which issued the DD and submits an application for revalidation of the DD.
The bank branch (after verifying the records), would extend the validity period by another three months (from the date of revalidation). You should note that a DD which has been revalidated once, cannot be further revalidated. So, you have to present the DD within the revalidated period.
So, with this, we come to the end of this post on Demand Draft. We hope that it has been a comprehensive post on Demand Draft.
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