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A cancelled cheque might look like a simple piece of paper with the word “CANCELLED” written across it. However, it plays a vital role in today’s financial system. Whether you're opening a new bank account, setting up automatic payments, applying for a loan, or investing in mutual funds, you’re likely to be asked for a cancelled cheque at some point.
Although not used for deposits or withdrawals, a cancelled cheque remains a useful document. It may serve to verify your account number, bank branch, and IFSC code. Institutions might use it to confirm that payments are routed through the correct bank account.
A cancelled cheque is a document that serves as proof of your bank account details, including your account number, bank branch, and IFSC code. It is often used in various financial services such as KYC, loan applications, and salary processing. Understanding how to cancel a cheque correctly and its role in these processes helps ensure accurate and smooth financial transactions.
Definition
A cancelled cheque is a regular cheque that has the word “CANCELLED” written across it, typically in bold letters. Once cancelled, it cannot be used to carry out any financial transaction. It simply becomes a reference document that displays your essential bank details.
How to create a cancelled cheque
To cancel a cheque, you may draw two parallel lines across the cheque leaf and write “CANCELLED” between the lines. Ensure that the cancellation doesn’t cover or hide the key information such as:
Account number
Bank name and branch
IFSC code
Your name (if pre-printed)
There’s no need to sign a cancelled cheque, nor do you need to fill in any other fields like date, amount, or payee name. Avoid overwriting or making corrections. A messy or unclear cancellation may lead to rejection by the institution requesting the cheque.
Purpose of Cancellation
The cancellation ensures the cheque cannot be used for making payments, withdrawing money, or initiating any unauthorised transactions. However, the information it holds is still visible and valid for verification. This makes it a secure way to confirm your banking details without exposing your funds to risk.
While cheques are physical documents, some digital platforms may accept a scanned image or photograph of a cancelled cheque. In such cases:
Scan or click a photo of the cancelled cheque
Ensure all bank details are clearly visible
Upload the image through the secure portal of the bank or financial institution
Note: Check the institution’s requirements for digital submission before proceeding.
Never use a damaged, torn, or unclear cheque
Avoid hiding critical details with ink or lines
Do not sign a cancelled cheque
Keep a copy or record of the cancelled cheque submitted for future reference
Linking Bank Accounts
Direct Debit Mandates
A cancelled cheque is often required while setting up automatic payments like EMIs, utility bills, or SIPs. It allows banks to verify your account before allowing recurring deductions.
Linking with Financial Institutions
Banks and investment platforms might need your account details to facilitate fund transfers. A cancelled cheque helps verify this information quickly and accurately.
KYC (Know Your Customer) Requirements
Verification Process
KYC is mandatory for opening accounts and conducting certain transactions. Submitting a cancelled cheque as part of your KYC process allows institutions to validate your bank account details.
Opening New Accounts
Banks may ask for a cancelled cheque when you open a savings, salary, or investment account. This helps ensure that the account you’re linking is correct.
Loan Applications
Bank Loans
When applying for personal, home, or education loans, you might likely need to submit a cancelled cheque to confirm your account details.
Loan EMI Setup
Banks need your bank account to be verified before EMIs can be auto-debited. A cancelled cheque facilitates this verification process.
Investment Transactions
Mutual Funds & SIPs
Investment platforms require a cancelled cheque when you start a SIP or link your bank account for redemptions and dividend payouts.
Equity and Demat Accounts
While opening a demat or trading account, brokers use a cancelled cheque to verify that the bank account belongs to you.
Government Schemes and Salary Credit
Government Subsidies or Benefits
Many government schemes, such as LPG subsidies or DBT (Direct Benefit Transfer), require a cancelled cheque to ensure that benefits are deposited into the correct account.
Salary Accounts
Some employers request a cancelled cheque to confirm bank details before setting up salary credits.
A cancelled cheque serves as a simple way to provide verified banking details without sharing sensitive transaction authorisation.
Here’s what it displays:
Bank Name and Branch: Confirms the branch where your account is held.
Account Number: Essential for setting up financial services like auto-debit, salary credits, or investments.
IFSC Code: Used for electronic fund transfers such as NEFT, RTGS, and IMPS.
Holder’s Name: If the cheque is personalised, your name is usually printed, providing additional confirmation of ownership.
Authenticity of Bank Details
Institutions prefer cancelled cheques to avoid manual errors while entering banking details. A small mistake in your account number or IFSC can delay or misdirect payments.
Security
By cancelling the cheque, you render it non-functional for any monetary transactions. This reduces the risk of misuse if it falls into the wrong hands.
Ease of Setup
Using a cancelled cheque saves time and avoids the need for extra documentation or manual data entry. It is a convenient, standardised way to provide verified banking information.
A cancelled cheque might seem like a small document, but its role in today’s financial system is significant. It acts as a simple yet reliable way to verify key banking information, helping to set up payments, loans, investments, and salary credits accurately.
Before submitting a cancelled cheque, always double-check that:
All essential details are visible and legible.
The cheque is marked clearly with “CANCELLED”.
It is clean and undamaged.
In a world that is moving rapidly towards digital banking, the cancelled cheque remains a vital document for ensuring smooth, secure, and verified financial transactions.
No. A cancelled cheque cannot be used for any form of fund transfer or withdrawal. It is invalid for transactions.
No, you do not need to sign a cancelled cheque. The cheque should be cancelled with the word "CANCELLED" written clearly across it, without any signatures or date.
It’s important to avoid overwriting or hiding key information on the cheque. If this happens, it is best to use another cheque to ensure all details are visible and legible for verification purposes.
Yes, some institutions accept scanned copies or photos of a cancelled cheque for digital submission. Ensure the details are clearly visible and check the institution's requirements for digital submission.
A cancelled cheque is often required for verifying bank account details in various processes such as loan applications, setting up automatic payments, or opening new accounts. It helps institutions ensure the accuracy of your account information.
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Posted on 16 May
Roshani Ballal
Academy by Bajaj Markets
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