Verification of a customer’s credentials is a fundamental aspect of maintaining security and trust in the realm of banking and financial transactions. A cancelled cheque serves as one of the primary means of validating a customer’s credentials.
A cancelled cheque has practical uses, such as verifying account details for electronic fund transfers (EFTs), registering for automatic bill payments, applying for new investments or insurance policies, verifying bank details for loans or credit cards, and fulfilling the requirement for KYC documents for businesses.
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What is a Cancelled Cheque?
A cancelled cheque is a cheque that has been rendered void to prevent its use for monetary transactions. It typically features two parallel lines diagonally across the cheque, with the term “CANCELLED” written between these lines. It does not require the account holder’s signature.
A cancelled cheque serves as proof of ownership of a bank account and provides essential details including the account holder’s name, account number, bank name, branch name, IFSC and MICR code.
A cancelled cheque indicates that a payment has been made. When cash is withdrawn using a cheque at a bank counter, the bank marks it as cancelled to ensure that the funds are not withdrawn again from your account. This helps prevent fraud or duplicate withdrawals.
How to Write a Cancelled Cheque?
Ensure that you pick a new and unused cheque from the chequebook.
Start by drawing two parallel lines across the cheque. These lines should be drawn in such a way that they indicate that the cheque has been cancelled.
Between these parallel lines, write “CANCELLED” in capital letters. Make sure that the word is legible and visible.
Do not fill in any extra information such as the payee’s name or amount. The purpose of a cancelled cheque is to provide proof of your bank account details, so you must not include any additional information on the cheque.
It is important to ensure that you do not obscure any vital details on the cheque, which include your account number, IFSC, MICR code, bank name and bank address.
When Do You Need a Cancelled Cheque?
1. KYC Completion
A cancelled cheque plays a crucial role in completing the requirements of KYC details when investing in stock markets, mutual funds, and other financial schemes.
By submitting a cancelled cheque online, you provide proof of your bank account details to verify your identity and link it to your investment portfolio. This helps financial institutions ensure compliance with regulations and safeguard against fraudulent activities.
2. EPF Withdrawal
Providing a cancelled cheque is necessary for withdrawing funds from your Employee Provident Fund (EPF) account. It serves as proof of your bank account details, ensuring that the funds are transferred to the correct account.
3. Electronic Clearance Service (ECS): EMIs
A cancelled cheque is required to activate the Electronic Clearance Service (ECS) facility for secure fund transfers between bank accounts.
By attaching a cancelled cheque, you authorise the transfer of funds directly from your account to the designated recipient’s account.
A cancelled cheque is needed to activate Equated Monthly Installments (EMIs) for loans or credit. It facilitates direct debit from your bank account on a specified date, ensuring timely repayment.
5. Demat Account
When opening a Demat account for trading in stocks, a cancelled cheque verifies that you have an active bank account under your name. This ensures seamless transfer of funds during trading transactions.
Submitting a cancelled cheque is essential when purchasing insurance policies. It acts as proof of your bank account details and aids in premium payments and other transactions related to insurance policies.
Example of a Cancelled Cheque
You can recognise a cancelled cheque by seeing the word “CANCELLED” between two parallel lines on a normal cheque. It contains several standard components, including the bank name, branch name, account holder’s name, account number, IFSC and MICR code.
Here is a cancelled check example:
While a cancelled cheque cannot be used for transactions, it holds vital bank details crucial for automated processes, KYC and banking tasks. A cancelled cheque facilitates a range of financial transactions and administrative processes, contributing to the efficiency and security of modern banking practices. Banks rely on the information provided on a cancelled cheque to identify their customers. It is important to treat a cancelled cheque with care due to its potential for fraud. When handled responsibly, a cancelled cheque serves as a valuable tool for secure banking transactions.
Frequently Asked Questions (FAQs)
1. Is it mandatory to write a cancelled cheque?
No, it is not mandatory to write a cancelled cheque, but it is often required for various financial transactions.
2. Can my bank cancel my cheque?
Banks can cancel cheques upon customer requests, particularly in situations involving lost or stolen cheques. This provides an added layer of security and helps you protect your financial assets from potential misuse or fraudulent activities.
3. Is it permissible to sign a cancelled cheque?
Yes, it is permissible to sign a cancelled cheque as long as you mark it as “CANCELLED”.
4. What are the risks linked to cancelled cheques?
A cancelled cheque carries the risk of misuse or fraud if not properly destroyed. It may reveal sensitive banking information.
5. Is red ink acceptable for cancelling a cheque?
No, black or blue ink should be used to cancel a cheque.
6. Is it possible to block a cheque leaf online?
No, you cannot block a cheque leaf online. You must physically write “CANCELLED” across the cheque to render it financially invalid.