A cheque is a bill of exchange that facilitates money transfers between two parties. In simpler terms, it is a document you present to a bank to pay a particular amount to another person.
Often, in financial transactions, you may have come across the term, cancelled cheque. A cancelled cheque leaf is one on which you don’t sign or mention any amount.
A cancelled cheque means that you have an account with a specific bank and is used in several scenarios, such as:
Applying for loans
Purchase of high-cost products/services.
You may require a cancelled cheque to complete the KYC process, avail a loan, or when buying an insurance policy. Here is how you can write a cancelled cheque when required:
Tear out a cheque leaf from your book.
You can simply draw a couple of parallel lines diagonally and write ‘Cancelled’ in between the two lines.
Ensure that you write ‘Cancelled’ in block letters (upper case).
Don’t sign anywhere or mention any amount.
You must bear in mind certain things when you are writing a cancelled cheque. These include:
The cheque leaf should be fresh.
The cheque leaf should be part of the cheque book issued by your bank.
It needs to contain information like IFSC and MICR code, name and bank address/branch.
It also needs to have your name printed on it and your account number printed.
No extra information like the amount, signature or account payee details, etc., should be handwritten.
While drawing parallel lines across, make sure not to cover or block out any information on the cheque. The IFSC/ MICR codes, bank address, your printed name and account number are essential details that must be clearly visible.
Hand over the cancelled cheque only to the concerned official or institution after doing your checks, as it contains sensitive details.
Certain financial transactions require you to write a cancelled cheque, which are:
KYC Completion: Know Your Customer (KYC) is a process by which financial institutions verify your details. You may need a cancelled cheque leaf for completing your KYC as your bank details are present on it
Bank Account Opening: A cancelled leaf is also needed when you open a new savings or current account
Electronic Clearance Services: ECS allows you to perform paperless debits, credits, and transfers/ A cheque that’s cancelled may be required by a service provider or investment firm to start ECS
EPF Withdrawal: You may need a cheque that’s cancelled to take out your EPF fund if it has matured. A cancelled cheque will also be required when you take out the funds prematurely
Demat Account: Along with proof of address and ID, you must furnish a cancelled cheque to complete the KYC process
EMIs: A cancelled cheque is a necessary requirement when you take out a loan or purchase a product in EMIs
Insurance: You have to provide proof of your bank account when purchasing an insurance policy. A cancelled cheque acts as this proof for an insurance company
A cancelled check is required when carrying out different financial transactions. Here is how it is used most commonly in the following cases:
To Avail Loan: When availing a housing, education or car loan, you would have to make monthly payments. In order to complete the EMI process, the bank or lender would request a cancelled cheque.
Purchase on EMIs: A cancelled cheque is asked for when you make an expensive buy on No Cost EMIs on a platform such as Bajaj Markets. You may have to present a cancelled cheque to apply for an EMI Network Card.
Opening Trading Account: You may need a cancelled cheque leaf for opening a demat and trading account.
Insurance Policy: Another cancelled cheque example is when you have to submit it to get your insurance policy processed.
While generally safe, there are a few risks to note.
Fraudsters can use cancelled cheques for scams, as it has vital details printed on them
Cancelled cheques do not require a signature or amount. So, ensure that there is no signature, as fraudsters can forge it
Submit the cancelled leaf of the cheque to an authorised institution only, as it contains your sensitive bank information
When an institution requires you to sign the cheque, get a supporting document for this requirement
Alert the bank without delay if you think that an unauthorised transaction has been made from your bank account
Fraudsters can use critical information about your bank account on cancelled cheques to carry out a scam. However, you can avert such a scenario by being vigilant when cancelling a cheque and handing it over to the other party.
A cancelled cheque signifies that your bank account is used in several scenarios, such as applying for loans, trading, or purchase of high-cost products in EMIs.
Banks, NBFCs and other institutions only ask you to use blue or black ink when cancelling a cheque.
No, banks cannot cancel a cheque on your behalf. In case you do not have a cheque, banks will provide you with a chequebook.