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Demand Draft

Meaning of Demand Draft

A demand draft is an instrument used to transfer money from one bank account to another, or from one person to another. The bank issues the draft to a customer (drawer), instructing a different bank or branch to pay the specified sum to the payee.

Demand drafts are different from standard cheques in that they can be cashed without needing a signature. Due to the rising use of demand drafts for fraudulent purposes, new regulations were proposed in 2005 that would strengthen victim rights to claim refunds and hold banks more responsible for accepting phoney cheques.

Demand drafts are comparable to cheques, except they are more secure and difficult to counterfeit. The extra security is because, with demand drafts, the drawer needs to pay the bank before issuing a draft. In contrast, a cheque can be issued even if your bank account does not have enough money. Because of this, cheques can bounce, but demand drafts guarantee a secure and timely payment.

The drafts are refundable upon request. The beneficiary must deliver the instrument in person to the branch; it cannot be paid to the bearer. Suppose the beneficiary wants to make the draft not payable to the bearer. In that case, they must visit the particular branch of the bank and meet the branch manager in person to deliver all instruments in writing. It may also be gathered through the bank's clearing system.

Types of Demand Drafts

Demand drafts are of two types:

Sight Demand Draft: Only when specific documentation has been verified are applications for this form of DD approved and paid Sight demand draft is payable immediately. To get this demand draft paid, the drawee has to present some specific documents for verification. If any of the needed documents are not presented, the payee will not be able to receive any money. If the requisites documents are not provided, then the payee will not receive any encashment payment. 

Time Demand Draft: The time demand draft can be withdrawn after a stipulated time. A Time DD cannot be withdrawn from the bank before that time because it is only payable after that time.

Process of Issuing of Demand Draft 

Demand draft forms can be obtained from the bank or filled out online. Demand draft forms are available online and offline. You can fill it out online or from a nearby bank. You must provide certain crucial important information, such as your method of payment (cash or cheque), the beneficiary's name, the location where the demand draft will be cashed, the cheque number, the number of your bank account the bank account number, and your signature, etc. If you are paying by cheque and the amount exceeds Rs. 50,000, you must also submit information about your PAN card.

You must pay a few fees for the draft, subject to the bank's regulations. Although the fees may change, a particular standard always applies. Here is a list of the fees the nation's well-known banks assessed.

Cancellation of a Demand Draft

Cash or a cheque can be used to make a draft, and the bank will accept it immediately. You must visit the bank to cancel a DD because there is no online option. There are two circumstances in which you would need to cancel the demand draft based on the payment methods.

You made a cash purchase: To obtain a refund, you must present the bank with the original draft and the receipt. For cancellation of demand draft,  the bank may charge some specific amount ranging. The bank would take away between 100 and 150 200 rupees.

You made a payment by cheque: If you made a payment by cheque. It was taken out of your bank account. You must present the original draft and an adequately completed cancellation form to have the money returned to your account. The bank will charge Rs. 150/- for such cancellation, with a 150 rupee deduction.

If you misplace or fail to get the DD through the mail, you risk getting into problems. The bank will demand verification that the instrument was issued. It is a challenging task, but with some cooperation from the bank, you might be able to locate a copy of the draft receipt and start the cancellation process.