A cheque is a written order from one person to another instructing the bank to pay a specific sum of money from your account to the account of the person in whose name the cheque is drawn.
Even though the digital age has made it easy to perform any commercial transaction swiftly, many people still choose to use cheques for payment because they lack confidence in online means. A cancelled cheque may be required in many banking and financial transactions.
What is Meant By A Cancelled Cheque?
A cancelled cheque is one that has the words “cancelled” written across it and has been crossed by drawing two parallel lines. If a mistake was made when writing the cheque, it might be cancelled. However, other than the word “cancelled,” there is nothing more that needs to be written over the cheque, such as the payee’s name or the amount. Cancelling a cheque is important so that it doesn’t fall into someone else’s hands and potentially be used for fraudulent purposes.
A cancelled cheque serves as verification that the concerned individual has a bank account. Furthermore, even though a cancelled check can’t be used to draw out funds from the drawer’s account, it contains additional information such as the account number, account holder’s name, expiration date, name and address of the branch in which the individual holds a bank account, MICR code, and IFSC Code.
Here is a Sample Cancelled Cheque Image
How to write a cancelled cheque?
A cancelled cheque is simply a cheque with two parallel strike lines which has “cancelled” written in between them. It is important to cancel a cheque or otherwise, it can easily be misused. If you have to provide a cancelled cheque for any purpose, you need to follow some steps as mentioned below:
First: Get a fresh cheque from your chequebook that you want to cancel.
Second: Make sure to not write anything over the cheque, including the name of the payee, the amount, or your signature.
Third: Draw two parallel lines crossing the cheque.
Fourth: The word “CANCELLED” needs to be written in capital letters between the two parallel lines.
Make sure the cancelled cheque does not contain any significant information such as the name of the account holder and account number, the IFSC code, the MICR code, the name and branch address of the bank, and so on.
If you want to cancel a cheque because of an error made on the cheque, you can do so by following the steps outlined above.
Although nobody can withdraw from a cancelled cheque, many fraudulent acts may still occur if the cancelled cheque is mishandled. To be on the safer side, when you give a cancelled cheque, make sure you do not sign it and that you hand it over only to the person responsible for collecting it.
What is the purpose of a cancelled cheque?
A cancelled cheque can be used for many purposes like opening a bank account, investing in mutual funds, KYC purposes, etc. Below listed are the purposes for which you may be required to submit a cancelled cheque:
- Know Your Customer(KYC): This is one of the most common reasons for which you need a cancelled cheque. Cancelled cheques are used to complete many KYC procedures as they serve as proof that the concerned individual has an account in the bank. It holds details like the name of the account holder and A/C number, name and address of the bank’s branch in which the person has an account.
- Opening a Bank Account: A cancelled cheque needs to be submitted at the time of opening a bank account as a part of the documentation process.
- Investing In Mutual Funds: If you are planning to invest in mutual funds or the stock market, you must have a DEMAT account. When opening a DEMAT account, the company would require you to provide a cancelled cheque to confirm that the bank account linked to the investment is owned by you. According to the Know Your Customer (KYC) regulations, a cancelled cheque is required.
- Equated Monthly Instalments (EMI): EMI is the most preferred method of payment when purchasing a gadget or a high-value item. Individuals make monthly payments on loans such as vehicle loans, housing loans, student loans, and personal loans. To begin the monthly instalment process, you are required to provide a cancelled cheque as proof of having a bank account.
- Opening a DEMAT Account: You are required to have a DEMAT account for holding shares in electric form by shareholders. If you want to open a DEMAT account, you’re required to provide evidence of your identity and address. In addition, other KYC documents might include proof of your identity, residency, proof of residence and employment status. which need to be submitted to the stock brokerage in order for the account opening process to proceed.
- Withdrawal of Provident Fund: If you want to take money out of your Employee Provident Fund, you must provide your employer with a cancelled cheque.
- Electronic Clearance Service (ECS): ECS is an electronic mode of fund transfer that automatically deducts money from your account every month for any transaction you have done. To set up an ECS from your account, you will have to provide a cancelled cheque. Once your ECS account is set up with the bank, there will be a deduction of money from your account every month.
- Insurance Policy: Some organizations may require you to present a cancelled cheque when you are purchasing an insurance policy. This is done to verify that the bank information provided by you is correct.
When a cheque is cancelled, it cannot be used to access your account or withdraw funds. However, a cancelled cheque still contains your financial information including your name, account number, name and address of the bank’s branch, IFSC and MICR code.
So to stay safe, make sure you never sign a cheque that you intend to cancel. If you need help managing your finances, Piramal Finance is here to be your financial guide. Contact us today.
Note: Plag is above 10 per cent because of the repeated word “cancelled cheque”