Cancelled Cheque

What is a Cancelled Cheque?

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

• Making investments 

• Purchase of high-cost products/services.

How To Write a Cancelled Cheque

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.

What are the Requirements for a Cancelled Cheque?

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. 

When Do You Require a Cancelled Cheque?

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

Various Uses of Cancelled Cheques 

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.

Risks Associated with Cancelled Cheques

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