Getting a demand draft issued involves paying more than the draft amount itself. Banks charge an issuance fee, Goods and Services Tax (GST) applies to that fee and additional charges may apply for services such as delivery or special processing. The total cost varies by bank, draft value, applicant type and mode of issuance, making it important to understand the applicable fee structure beforehand.
What is a demand draft?
A demand draft (DD) is a prepaid payment instrument in which the bank collects the full amount upfront and guarantees payment to the named beneficiary. Because the issuing bank backs the payment, there is no risk of the draft bouncing, making DDs a preferred payment method for college admissions, property transactions, government tenders, court deposits and vendor payments that require guaranteed funds.
Although UPI and NEFT have replaced DDs in many everyday transactions, demand drafts continue to be widely used for formal and institutional payments that require a bank-guaranteed instrument.
What factors affect demand draft charges?
Demand draft charges are affected by the draft amount, the customer's relationship with the bank, branch-specific policies, issuance mode, delivery method and funding method. The draft amount is usually the primary factor, with most banks following a slab-based fee structure: smaller drafts attract a flat charge, while larger drafts are charged based on value.
These factors can also influence the final cost:
- Customer relationship: Charges may vary depending on the type of banking relationship you have with the issuing bank. Certain account categories, such as salary, pension, premium or relationship banking customers, may receive discounted or waived DD charges.
- Branch policy: Historically, some banks charged differently for services obtained from non-home branches. However, with the widespread adoption of core banking systems and RBI's push for uniform banking services, separate home-branch and non-home-branch pricing for demand drafts has become uncommon. Customers should still refer to their bank's latest schedule of charges, as policies may vary.
- Issuance mode: Some banks offer lower charges, concessions or fee waivers when demand drafts are requested via internet or mobile banking. However, online issuance is not universally cheaper than branch-based issuance and the applicable charges depend on the bank's pricing policy.
- Delivery method: Courier or postal delivery is often charged separately from the standard DD issuance fee. If you request physical delivery of the demand draft, additional postage or courier charges may apply depending on the bank and delivery location.
- Mode of funding: Whether the demand draft is funded through an account debit or a cash deposit can affect the charges. Several banks charge higher fees for drafts issued against cash, subject to applicable regulatory and Know Your Customer (KYC) requirements.
How are demand draft charges calculated?
Demand draft charges are calculated by adding the bank’s issuance fee, applicable GST and any additional charges such as delivery or processing fees. The issuance fee is usually based on the draft amount and the bank's fee structure.
The total cost of a DD typically includes:
- Base issuance or processing fee
- GST at 18% on the service fee, applicable under Services Accounting Code (SAC) 9971 covering financial and related services
- Extra fees or delivery-related charges, if applied by the bank
Example: Say you hold a savings account at State Bank of India (SBI) and need a DD for ₹50,000. SBI charges ₹5 per ₹1,000 for drafts between ₹10,001 and ₹1,00,000.
- Issuance fee: ₹5 × 50 = ₹250
- GST at 18%: ₹45
- Total charges: ₹295
- Amount the beneficiary receives: ₹50,000
In this case, you pay a total of ₹50,295. The ₹295 represents the cost of issuing the demand draft.
Why this matters for businesses
This matters for businesses because demand draft charges are separate banking expenses that must be accounted for correctly to maintain accurate financial records and avoid reconciliation issues.
The payment made through the DD represents the face value, while the issuance fee and the GST charged on it should be recorded as a separate expense in the books. Recording both as a single entry can create reconciliation problems over time.
Whether the GST paid on bank charges qualifies for input tax credit (ITC) is also worth checking, as eligibility depends on the nature of the business and the specific transaction.
How to check the exact charge before issuing a demand draft
A few minutes spent checking the DD charges in advance saves a lot of back-calculation later. To determine the final amount payable:
- Look up the schedule of charges on the bank's official website under accounts or services.
- Check whether the published fee includes GST or is listed before tax.
- Ask the branch whether any additional charges apply for non-home branch issuance.
- Confirm whether your account type qualifies for a concession or waiver.
- Keep the issuance receipt, as it shows the draft amount and charges as separate line items.
Conclusion
Before issuing a demand draft, always factor in the bank's issuance fee, GST and any additional charges to avoid unexpected costs. Understanding how DD charges are calculated helps individuals estimate the total amount payable and enables businesses to record these transactions accurately.
For organisations that issue demand drafts regularly, TallyPrime simplifies accounting by helping track the payment amount, bank charges and GST separately, making reconciliation easier and financial records more reliable.
