A demand draft, or DD, is a popular payment method in India. DDs are pre-paid negotiable documents in which the drawee bank assumes responsibility for paying the payment upon presentation by the payee.
To receive payment, the DD must be shown in the relevant bank branch or picked up during the clearing procedure.
What is a Demand Draft?
- What is a Demand Draft?
- How Demand Draft Works?
- Types of Demand Draft
- How to Cancel Demand Draft?
- Demand Draft Cancellation Charges
- When Demand Draft will be Used?
- Demand Draft Validity
- Why is a demand draft preferred over a cheque?
- Frequently Asked Questions
Banks provide demand drafts, which are a sort of negotiable document. A negotiable instrument promises a specific amount of payment and identifies the payor. Under no circumstances can a negotiable instrument be transferred to another person. A Demand Draft is the name for this type of instrument.
- A client (drawer) receives a draft from the bank, instructing the bank to pay a certain amount to the payee in another bank or the bank’s own branch.
- Demand drafts are similar to cheques, but they are more difficult to forge and safer to use. Because a demand draft must be paid before being issued in the bank, whereas a check can be issued with or without sufficient cash in the account. As a result, checks can bounce, whereas drafts ensure that payments are executed on schedule and in full.
- Demand drafts will be payable immediately. The beneficiary must present the instrument to the branch rather than paying it directly to the bearer. It can also be collected through the clearing mechanism of the banks.
- Demand drafts are generally issued when the parties are unfamiliar and wary of one another. Because fraud and counterfeiting are almost impossible in such scenarios, it is especially valuable.
How Demand Draft Works?
No matter whether a person has a bank account or not, they can make use of the draft facility. A demand draft can be issued by anyone who wants to pay a specific amount to an institution or someone with proof of payment. The individual can either visit the bank and request a draft form, or they can fill out the form online. A cheque or cash can be used to pay the amount mentioned in the form.
Types of Demand Draft
Demand drafts are classified into two types:
Sight Demand Draft
This form of DD is only approved and paid once specific documents have been validated. The recipient will not be able to receive any funds if any of the required documents are not presented.
Time Demand Draft
Time DDs are only payable once a certain amount of time has passed, and they cannot be taken from banks before then.
How to Cancel Demand Draft?
If you give the bank cash or a check to get a draft, the bank will take it right away. You must visit the bank to cancel the draft because there is no online option. Depending on the payment method you used, you have two options for canceling the DD.
- Payment Method Cash
You must submit both the original draft and the receipt to the bank in order to receive a refund.
- Cheque as a method of payment
If you paid by check and the funds were withdrawn from your bank account, you must provide the original draft together with a properly completed cancellation form to have the funds restored back to your account.
Regardless, if the DD is lost or missed by the postal provider, you may be in danger. As a result, the bank demands verification of instrument issuance. It may be feasible to obtain a copy of the draft receipt and begin the cancellation process with the help and cooperation of the bank.
Demand Draft Cancellation Charges
Demand Draft cancellation fees are determined by the form of payment used to issue the Demand Draft.
- If you pay with cash, the bank may charge you Rs 100 to Rs 150 in cancellation fees.
- If the payment method is cheque, the bank may levy a demand draft cancellation fee of Rs 150.
When Demand Draft will be Used?
When purchasing items online or over the phone, demand drafts are commonly used. It can also be utilized when recurrent payments, such as bill payments, debit your bank account on a regular basis.
The payments are also used for return item fees, payments made by customers remotely, and transfers between different bank accounts. Thus, demand drafts are typically accepted by telemarketers, utility providers, credit card companies, and insurance providers.
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Demand Draft Validity
A draft is valid for three months from the date of issue. If the draft is not given to the bank within that time frame, it will expire. The money will not be reimbursed to the drawers account even if it has expired. After that, the drawer must revalidate the draft with the bank. It’s important to know that the payee or anybody else cannot approach the bank to get the DD revalidated.
The bank validates the original facts and extends the validity of the draft for another three months. A revalidated draft, on the other hand, cannot be revalidated.
Why is a demand draft preferred over a cheque?
Demand drafts are always preferred by governments and educational institutions because to their high worth. Before issuing the draft, the drawer must make the stipulated payment to the bank, which serves as a guarantee that the promised sum will be paid. Even an A/C Payee check, on the other hand, does not guarantee that a payment would be received by the recipient. Cheque fraud occurs on a massive scale.
Frequently Asked Questions
Is a bank account necessary to obtain a demand draft?
Demand drafts are issued by banks regardless of the drawer’s bank account. A Demand Draft can be issued in exchange for cash or a check. A bank account is necessary for the issuance of a Demand Draft via check.
Are there any instructions from the Reserve Bank regarding demand drafts exceeding Rs.20000?
The Reserve Bank of India (RBI) has issued guidelines to banks to address the issue of unscrupulous people authorizing fraudulent demand drafts. All DDs over Rs. 20,000 must be crossed by the account payee in order to comply with the instructions.
How should a duplicate demand draft be issued?
If a demand draft is misplaced or lost, a bank may issue a duplicate demand draft. The bank will impose a nominal fee, which will result in the cancellation of the old draft and the issuance of a new one. A bank may issue a demand draft for less than Rs. 5,000 without requiring an NPA (Non-Payment Advice) if the amount is less than Rs. 5,000.
What is the maximum amount of cash payment that can be accepted for the issuance of a draft?
The Reserve Bank of India has told banks not to issue demand drafts for cash sums over Rs. 50,000. As a result, banks are prohibited from issuing demand drafts worth more than Rs. 49,999.