Demand Draft (also known as DD) is a pre-paid negotiable instrument, wherein the Bank by whom the Demand Draft has been made undertakes the responsibility to make full payment whenever the Instrument is presented for payment. In order to obtain the payment, the beneficiary either has to deposit the same in his Bank Account or get the same collected through the Branch who has made the DD.
While making a Demand Draft, the Bank deducts the amount from the Bank Account of the Individual who has requested for making the Demand Draft and deposits the same in their own account. And when the DD is presented for clearing, it is the responsibility of the Banker to make the Payment.
It is not mandatory that you should have a Bank Account in the Bank from where you are preparing the Demand Draft. The Demand Draft can be made by paying the Bank in Cash as well, but for Demand Drafts exceeding Rs. 50,000 the payment should be by cheque only. Quoting your PAN No. is also necessary in case the value of the DD is more than Rs. 50,000.
A Draft is normally prepared in the Indian Currency i.e. Rupees. However, in case you are required to make the payment in foreign currency, a draft can be prepared in foreign currency as well. Demand Draft as an easy way of sending payments abroad as the risk of non-clearance of a Demand Draft is Nil. Some other popular ways of sending payments abroad are via Swift Wire Transfer, via Paypal Account, via Money Transfer Agents like Western Union etc.
Crossed Demand Draft
In case the Demand Draft is Crossed as Account Payee, it cannot be encashed over the counter from the Bank Branch and can only be cleared by depositing in the Bank Account of the Person in whose favor the DD has been made. However, in case the Instrument is not a Crossed Demand Draft, it can be encashed without depositing in the Bank Account, by encashing it over the counter from the Bank Branch.
The main purpose of Crossing a Demand Draft is the ensure that the payment is cleared by means of an account i.e. the payment is deposited in the Bank Account of the person in whose favor the DD has been drawn. This helps in preventing wrongful payment to any person and ensures that the payment is made only to the person in whose favor the DD has been drawn and not to any person.
If the DD is not crossed, the payment would be made by the bank to the holder of the Instrument after his proper identification. And in case, it is a crossed demand draft, the payment would be made only to the Bank Account of the person.
RBI in its Notification dated 4th November 2011 has announced that all DD’s exceeding Rs 20,000 mandatorily have to be Crossed.
Demand Draft Charges
There are no standard charges for making a DD and the Charges usually vary from Bank to Bank and also vary with the value of the Demand Draft.
The Demand Draft Charges are variable and vary with the value of the Draft. Banks usually charge a variable fee Rs. 1.5 to Rs. 4 per thousand plus Service Tax. However, if the value of Draft is small, they may charge flat fixed charges as well. The charges may be lower in case of Privilege Banking Customers.
In case the Individual on whose request the Demand Draft had been drawn wants to cancel the Draft, he can submit a request for the same along with the Demand Draft to the banker from whom the Draft had been made and the Bank would cancel the DD and pay you the amount of the DD. The Draft Cancellation Charges are usually Rs. 100 to Rs. 300 per DD.
Contents of a DD
A Demand Draft is prepared by the Bank and a specimen copy of the same is attached here for your Ready Reference
- 01/09/2007:- Date on which the DD has been drawn. Prior to 1st April 2012, a draft was valid for 6 months but w.e.f. 1st April 2012, the Validity of DD has been reduced to 3 Months.
- PIO Ministry of Home Affairs: Name of the Person in whose favour the DD has been drawn
- New Delhi: Place at which the DD is payable
- Rs. 10: Amount payable through this DD
- ICICI Bank, Connaught Place: Name of the Drawee Bank and Branch
- The Authorised Signatory of the Bank Branch from where the DD has been prepared
- 367217:- DD Number of the Instrument
- 000229000:- MICR Code of the Bank Banch
Difference between Demand Draft and Cheque
A Cheque is signed by an Individual and therefore there are chances that the cheque may or may not clear. However, a DD is prepared by the Banker and as it is signed by a banker, the chances of default are not there.
You would have seen that many organisations when receiving payments from the public don’t accept Cheque Payments and require that payments should be made through Bank Drafts. The reason for this is that there are chances that the Cheque may get dishonoured or may not clear due to any reason whatsoever, but that is not the case with DD. In case of a DD, the Payment is to be made by the Bank who has drawn the Demand Draft and therefore the chances of the cheque not clearing are Nil.