Cancelled Cheque

A cancelled cheque is a type of cheque that is used to provide essential details such as the holder’s name, holder’s account number, bank name, MICR and IFSC codes and other details. A cancelled cheque serves as evidence for verifying your account information. 

To know about cancelled cheques in detail, including how to write a cancelled cheque, read on.

A cancelled cheque is often required to complete the KYC process, avail a loan, or when buying an insurance policy. If you wish to know how to cancel a cheque, follow these steps: 

• Step 1: Take out a fresh cheque from your chequebook.

• Step 2: Avoid writing any details on the cheque, including the payee’s name, the amount, and your signature.

• Step 3: Draw two parallel lines across the cheque horizontally and write the word ‘CANCELLED’ in capital letters between the two lines.

• Step 4: Be careful not to cover any important information, such as the account number, the account holder’s name, the bank’s name, the location and the IFSC and MICR codes.

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 

You may need to submit a cancelled cheque if you’re carrying out any of the following financial and non-financial transactions. 

• Equated Monthly Instalments (EMIs): Equated Monthly Instalments, or EMIs, are a popular method for purchasing items and loans. Through EMIs, the total cost of your purchases gets converted into affordable instalments. To initiate the monthly instalment process, you need to provide a cancelled cheque as evidence of having a bank account.

• Mutual Funds: While making investments in mutual funds, you need to open a Demat account. You need to verify that you possess a bank account, and therefore, you might need to present a cancelled cheque as per the Know Your Customer (KYC) guidelines of the mutual fund company.

• Insurance Policy: Yet another requirement of providing a cancelled cheque arises when you purchase an insurance policy. Most insurance provider companies ask for a cancelled cheque along with other necessary documents.

• Electronic Clearance Service (ECS): The automatic debit service, or Electronic Clearance Service (ECS), deducts money from your bank account for transactions like EMIs, insurance premiums, etc. To set up this automatic debit facility, you need to provide a cancelled cheque.

• Withdrawal of Provident Fund: Another requirement of providing your cancelled cheque comes when you wish to withdraw your EPF or employee provident fund money. Companies typically ask for your cancelled cheque since they get your account information through this. They can use it for transferring money to your bank account conveniently.

Using cancelled cheques is generally safe, but here are a few risks to note. 

• Anyone cannot withdraw money from a cancelled cheque, but some people may use it for fraudulent purposes

• Avoid signing cancelled cheques to prevent fraudsters from copying and misusing your signatures

• In case the signature on the cheque is mandatory, obtain a written declaration to confirm its validity

• Ensure that your cancelled cheque goes to a trustworthy entity since it contains your bank details

• If you suspect any unauthorised transactions, you need to inform your bank about the same

As part of their KYC verification process, banks and other financial institutions typically require their customers to provide a cancelled cheque at the time of registration. A cancelled cheque, especially when it is not cancelled properly, can be misused. 

You should never sign a cheque that you want to cancel since it will only increase the chances of misused. Furthermore, never provide a cancelled cheque to a stranger or a non-trustworthy individual. 

Most banks and financial institutions accept a photocopy of your passbook or your bank statement as valid documentary evidence. In such cases, you may consider providing either of the above two documents instead of a cancelled cheque. This way, you can effectively prevent it from being misused.