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Demand draft: All you need to know

[ecis2016.org] Know all about demand draft including its types, how to apply and how to guard against demand draft frauds

Demand draft is one of the financial instruments, using which money can be transferred from one bank account to another. Demand draft is issued by a bank after taking the amount for which demand draft is required from the customer, also known as the drawer. The bank that pays the money mentioned in the form of this demand draft is known as the drawee.

People can use the facility of demand draft, irrespective of whether they have a bank account or not. If a drawer wants to issue a demand draft, he has to go to the bank and fill a form to proceed with getting a demand draft or DD. The amount for which he seeks the DD, can be paid to the bank via cash or cheque.

The person/institution that receives the demand draft is called the payee and his/its name is mentioned on the demand draft. Note that the money on the demand draft will only go to the payee and no one else can encash it.

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Demand draft types

There are two types of demand drafts, namely:

Slight demand draft: In this type, the demand draft is issued only after the payee produces certain documents that are asked for, by the bank. Otherwise the demand draft is not issued.

Time demand draft: As the name suggests, this is time-bound and can be payable only after a certain prescribed time. A payee cannot encash the demand draft before the scheduled time from the bank.

Demand draft: How to fill?

On the demand draft form the drawer has to first enter details that include:

  • Name of the beneficiary.
  • Demand draft encashment location.
  • Mode of payment – whether cash or cheque.
  • If cheque then, cheque number and account number,
  • Signature.

Supporting documents like PAN card has to be provided on paying a DD amount of more than Rs 50,000 by cheque.

Demand draft: All you need to know

Source: ICICI Bank

Note that banks also charge convenience charges for issuing demand drafts. Mentioned are charges in some of the popular Indian banks.

 

Bank Demand draft service Demand draft associated charges
ICICI Bank Demand draft issue Rs 50 per DD, up to Rs 10,000;Rs 5 per thousand rupees or part thereof for DD of more than Rs 10,000, subject to a minimum of Rs 75 and maximum of Rs 15,000
  Demand draft issue by deposit of cash Rs 5 per thousand rupees or part thereof, subject to a minimum of Rs 100 and maximum of Rs 15,000
  Demand draft cancellation / duplicate / revalidation For Instrument value upto Rs 200 – Nil;

For Instrument value above Rs 200 – Rs 100

HDFC Bank Demand draft issue Rs 50 upto Rs 10,000; Above Rs 10,000 – Rs 5 per 1,000 on entire amount (minimum Rs 75 and maximum Rs 10,000).

Note that only DD amount upto Rs 1,00,000 for preferred/imperia and Rs 50,000 for other customers accepted at phone- banking.

For Senior Citizens (w.e.f March 1, 2021): Upto Rs 10,000 – Rs. 45; Above Rs 10,000 – Rs 5 per 1,000 or part thereof (minimum Rs 50 and maximum Rs 10,000).

  Demand draft cancellation / duplicate / revalidation Rs 60 and Rs 54 for senior citizens.

 

Demand draft and cheque: The differences

While demand draft and cheque are both financial instruments given by banks, there is a stark difference between them.

  • It is important to know that demand drafts are only issued by a bank and individuals cannot issue them, unlike cheques, which can be issued by individuals.
  • A demand draft can be considered safer than cheques as the bank issues a demand draft only if the person who asks for the demand draft or the drawer has a significant balance in his bank account. This is in contrast with cheques which are issues irrespective of the balance in one’s account.
  • Demand draft does not require any signature of the account holder for it to be encashed.
  • While cheques can be issued as bearer, demand drafts cannot be done in that manner and have to be deposited in one’s bank account. This is mostly used in case of large monetary transactions.

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Demand draft: How to cancel an issued draft?

As the demand draft is issued only after accepting the money, one has to go to the bank to cancel the demand draft.

If you have paid through cash, submit the original demand draft to the bank along with the bank receipt to cancel the demand draft and get a refund. Note that the bank may deduct upto Rs 150 as cancellation charges.

If you paid the demand draft amount using cheque, then, you need to fill a cancellation form along with the original draft and the demand draft amount will be credited back in your account. Note that the bank may deduct upto Rs 150 as cancellation charges.

Demand draft: What to do if demand draft expires?

From the date of issue, a demand draft is valid for three months. After this, the demand draft expires. Note that even after the demand draft expires, the money will not be deposited in the drawer’s account. The timeline of the demand draft can be extended for another three months by the drawer, who has to visit the bank to revalidate the demand draft. Remember that no one like the payee or anyone else other than the drawer can revalidate the demand draft. Also, the demand draft cannot be revalidated again if it expires the second time.

 

Demand draft fraud: How to be alert?

When someone issues a fake demand draft to the payee and the payee submits that to the bank, it is a demand draft fraud. Note that presenting a fake demand draft to the bank can lead to legal problems with the bank, as it is allowed to file an FIR against the payee.

  • While accepting a demand draft, know everything about your drawer including contact details and proof of details of the demand draft that is to be given to you.
  • Scan the demand draft to confirm any instances of forgery.
  • Legal experts mention that if you are a victim of demand draft fraud and the bank has filed an FIR against you, do file a counter FIR so that the drawer can be booked, you are free of the legal bindings and you recover your loss that was supposed to be paid through the faulty demand draft.

Source: https://ecis2016.org/.
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Debora Berti

Università degli Studi di Firenze, IT

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