Demand draft in the Indian context is essentially a written order, where a buyer pre-deposits certain amount of money in a bank and hands over the ‘written order’ to the seller, so that the seller can ‘demand’ the deposited money from the bank where it was deposited (may not be in the same branch though). With effective from 1 April 2012, any DD over Rs.20000 must be A/C payee only. This means that a person who draws money by producing a DD will not be given physical money but instead the money will be deposited electronically to his bank account.
Suppose Mr.A wants to buy a product from a company xyz which costs Rs.600
Instead of giving the money to xyz, Mr.A draws a Demand draft (DD in short) for Rs.600 in favour of xyz by paying Rs.600 (plus an additional commission that goes to the bank utilized) and then hands over the DD to xyz.
Use of a Demand Draft has significantly decreased over the years. Today, its very rare to see the use of DD’s in e-commerce transactions. But it is still prevalent in fields like education, employment (this is coming down too) etc.
DD’s will have a validity period of
6 months 3 months (with effective from 1 April 2012). If the beneficiary didn’t produce the DD with in 3 months from the drawn date, then it will be void.
Many Demand draft, essentially consist of 3 variables
MICR number and
Some DD’s may also have the extra 6 digit numbers between MICR and transaction code.
The first variable is the DD number which will be of 6 digits, followed by 9 digit MICR code, then followed by the next 6 digits (may not exists in some banks) and lastly the 2 digit transaction code.
As far as the DD CHARGES go, the countries largest bank SBI charges are as follows:
Up to Rs.5000: Rs.25
From 5000 till 10000: Rs.41
From 10000 till 1 lakh: Rs.3 per every 1000 (minimum charge of Rs.51)
Above 1 lakh: Rs.3 per every 1000 (minimum charge of Rs.306)
Note: These rates are as on 1 June 2013 and may change any time.