Cheques and Demand Drafts: Cheques and demand drafts gradually lose favour as payment instruments, as most people now use the RTGS, NEFT, and IMPS systems. However, demand drafts, rather than cheques, are still needed for many work applications, examinations, admissions, facilities, large-ticket transactions, and so on. Demand Drafts cannot be dishonoured, unlike cheques, which can be dishonoured due to insufficient funds.
This article explains how to make a Demand Draft both offline and online by filling out a form. What is a Demand Draft, and What is a Banker’s Check. What happens when a Demand Draft expires and how to get it cancelled. What makes a Demand Draft different from a check or a banker’s check?
What is meant by a Demand Draft?
The Demand Draft is a pre-paid Negotiable Instrument in which the drawee bank agrees to make full payment when the instrument is submitted for payment by the payee. The demand draft is payable to a specific bank branch at a specific location. Cheques are rarely allowed in many transactions because the drawer and payee are uncertain, and there is a credit risk if the check bounces. In such situations, a demand draft is approved as long as the money transfer is assured. The demand draft is valid for three months.
- One can pay a demand draft on-demand/ request
- One cannot pay a demand draft to a bearer. To obtain the payments, the beneficiary must either provide the instrument to the concerned bank branch directly or have it collected by the bank through the clearing process.
- The NI Act (Negotiable Instruments Act) 1881 discusses the demand draft in section 85(A).
Making Changes to a Demand Draft
While the RBI called for reasonable service charges for demand drafts as early as February 2007, no clear thresholds or metrics of reasonableness were set. As a result, each bank has its rates for issuing demand drafts.
For example, SBI DD charges 5 INR per 1000 or part thereof for greater than 10,000 INR but less than 1,000,000 INR.
- Therefore, for calculating, find the charges per 100 as 5/1000 = .005
- Use this for multiplying with the total amount.
- For example, for a DD of amount 12,000 INR, the DD charges are calculated as 12,000 * .005 = 60 INR.
- If you have a salary account, you will not be charged for demand drafts up to a specific limit. For example, bank demand drafts up to 1 lakh are free per day for HDFC salary accounts.
Charges of Demand Drafts ICICI Bank and SBI Bank
| Charges | SBI | ICICI Bank |
| Issuing DD | Up to 5,000 INR – 25 INR (incl. ST) Above 5,000 INR up to 10,000 – 50 INR(incl. ST) Above 10,000 INR up to 1,00,000 INR – 5 INR (incl. ST) per 1,000 INR or part thereof (Min. 55 INR incl.ST) Above 1,00,000 INR – 4 INR (incl. ST) per 1,000 INR or part thereof Min. 505 INR incl.ST Max. 15,000 INR incl. ST |
50 INR per D.D. up to 10,000 INR
3 INR per 1,000 INR or part thereof for DD of more than 10,000 INR; subject to a minimum of 75 INR and maximum of 15,000 INR |
| Issuing DD by cash deposit | No added Cash Handling fee is levied apart from the charges as above for issuance of IOI (Bankers’ cheque or demand draft) for the cash-based transaction | 4 INR per 1,000 INR or part thereof, subject to a minimum of 100 INR and a maximum of 15000 INR |
| Cancellation / Duplicate / Revalidation of DD | 100 INR + ST | For Instrument value up to 200 INR – Nil charge
For Instrument value above 200 INR – 100 INR |
| Issuing PO | Up to 5,000 INR – 25 INR (incl. ST)
Above 5,000 INR up to 10,000 – 50 INR(incl. ST) Above 10,000 INR up to 1,00,000 INR – 5 INR (incl. ST) per 1,000 INR or part thereof (Min. 55 INR incl.ST) Above 1,00,000 INR – 4 INR (incl. ST) per 1,000 INR or part thereof Min. 505 INR incl.ST Max. 15,000 INR incl. ST |
50 INR for PO of up to Rs.10,000,
For PO of more than 10,000 INR – 2.50 INR per 1,000 INR or a part thereof; subject to minimum 75 INR and maximum 15,000 INR.  For the students, senior citizens, and rural areas: For the amount of up to 10,000 INR – 40 INR; For amounts above 10,000 INR and till 50,000 INR – 60 INR; for amounts above 50,000 INR – 2,50 INR per 1,000 INR or a part thereof subject to maximum 15,000 INR. |
| Issuing PO by cash | No added Cash Handling fee is levied apart from the charges as above for issuance of IOI (Bankers’ cheque or demand draft) for the cash-based transaction | 150 INR per PO for the amount up to 50,000 INR, for PO exceeding 50,000 INR – 4 INR per 1,000 INR or a part thereof, subject to minimum 150 INR and max. 15,000 INR. |
| Issuing PO by cash | 100 INR + ST | For Instrument value up to 200 INR – Nil charge
For Instrument value above 200 INR – 100 INR |
A Step-by-Step Guide to Creating a Demand Draft
You can obtain a Demand Draft by going to the bank. If you have a bank account, you can pay with a check. Otherwise, you must pay in cash. You may also make a Demand Draft via the internet. If you visit the bank to make a demand draft, you will receive it within 30 minutes. However, it will arrive in a few days and be sent to your correspondence address if you order it online.
When you receive the Demand Draft, you are advised to:
- Check all the details, including amount, payable, etc., before you leave the bank.
- You must keep a photocopy or a scanned copy of the DD.
Steps of Making the DD
- Fill out the form – Request a demand draft application form from any bank or fill out the form online.
-  Form Information – Fill in the form’s details, such as whether you want to pay in cash or a check drawn on your account. Also, fill in the beneficiary of the DD, the sum, the location where the DD will be cashed, the check number, your bank account number, your signature, etc.
- Demand draft charges – Once you submit the form, along with the money/cheque and the demand draft charges, the bank will issue the demand draft. The fees differ from one bank to the next.
- PAN card details – If the sum exceeds Rs 50,000 and you pay by cheque, you must submit your PAN card details.
Making DD by Filling The Form Online
You may fill out your information online and choose to pick it up in person from your branch or have it delivered by courier. It could take 2-5 days if you send it by courier. It’s possible that you’ll be paying for postal services.
Many banks allow demand drafts to be sent to an Indian beneficiary address. For instance, HDFC claims that all Demand Draft requests will be processed the following business day. Within 3 to 5 working days, DDs will be couriered to the mailing address/provided beneficiary address.
Is it Possible to Make a Demand Draft with Cash?
Yes, indeed. A DD could be purchased with cash. If the sum of the DD exceeds Rs.50,000, the issuing bank can request identification and address evidence, as well as a PAN card. The DD commission for DDs purchased with cash could be higher than for DDs purchased with a cheque.
Demand Draft Cancellation
The sum will be deducted from your account directly after you make a (Demand Draft) DD. If you want to cancel the DD and get the money deducted back into your account for some excuse, you must go to the bank. There is no online option to cancel a DD in any Indian bank.
There are two possibilities if you already have an initial DD.
- You paid cash for the DD- If you paid cash for the DD, you must provide both the initial DD and the cash payment receipt. The balance will be refunded to you in cash as soon as possible, with some deductions (around Rs 100-150).
- If you paid the DD sum from your account, you need to provide the original DD along with the completed cancellation form. With a cancellation fee of about Rs 150, the sum will be credited back into your account.
If you don’t have your original DD (you might have misplaced it at home, or it may have been lost in the mail), the method of refunding or cancelling the DD would be complicated.
If you don’t have the original DD with you, you’ll need to sign an indemnity bond on stamp paper for the bank to cancel it. After that, most banks refund the money after a short period, such as one week, but some banks can take longer, up to the DD’s expiration date.
If a Demand Draft Expires
A demand draft in India is valid for three months from the date of issue. The Demand draft will be invalid if it is not submitted within three months, but money will not be immediately refunded. The purchaser of the draft should then go to the bank branch that issued the draft and request for the draft to be revalidated. Please note that the payee (the individual mentioned in the draft) or someone else cannot contact the bank to revalidate the draft.
After checking their original documents, the bank branch will revalidate the draft, which will increase the
validity period by three months from the date of revalidation. A draft that has already been revalidated cannot be revalidated again, so you must present the draft to the bank within the revalidation period.
Banker’s Cheque
Paper payment methods include currency, checks, demand drafts, banker’s cheques, Payment orders, and Payable ‘At Par’ cheques (Interest/Dividend warrants, refund orders, gift cheques, and so on). The Negotiable Instruments Act of 1881 provides the legal foundation for these instruments. This is covered in the following RBI document: India’s Payment Instruments.
A written text that can be delivered is referred to as a Negotiable Instrument. A negotiable instrument is a contract that guarantees the payment of a certain sum of money, either on-demand or at a predetermined time, to the payer listed on the document and that it cannot be transferred from the holder or named party to another. Crossed cheques, Bank Drafts, Bills of Exchange, and Promissory Notes are examples of negotiable instruments.
NEFT, RTGS, IMPS, UPI, Mobile Banking, Digital Wallets, and other non-paper payment methods include NEFT, RTGS, IMPS, UPI, Mobile Banking, and Digital Wallets.
What Exactly Is A Banker’s Check? What Is The Difference Between A Banker’s Check And A Demand Draught?
A banker’s cheque is a payment method that is identical to a demand draft. A Banker’s Cheque is used to move money within the local area, while a Demand Draft is used to transfer money between two locations. Bankers cheques can be cleared in any branch of the custom as long as it is located within the local jurisdiction, while Demand Drafts can be cleared in any branch of the same bank regardless of location.
If you live in Bangalore and need to pay a Demand Draft, you will be given a Banker’s Cheque.
| Comparison basis | BANKER’S CHEQUE | DEMAND DRAFT |
| Meaning | A banker’s cheque, also known as a payment order, is a cheque used to make payments within the same city. | A demand draft is a negotiable instrument used to move funds from one individual in some city to another in another city. |
| Validation Period | The validity of a banker’s cheque is three months from the date of issue. | The validity of a demand draft is also three months from the date of issue. |
| Special feature | The words “NOT NEGOTIABLE” are pre-printed on all banker’s checks. | A demand draft for 20,000 INR or more should be crossed “A/c payee.” |
| Clearance | It can be cleared in any of the city’s branches. | It can be cleared at any of the bank’s branches. |