What is a cancelled cheque and how to write one?

A cancelled cheque proves you have an account with a particular bank. It is often required for various purposes, such as setting up Electronic Clearing Service (ECS) mandates, KYC (Know Your Customer) procedures, or insurance policies. However, while it might be requested when shopping for items on EMI, it's more common in the context of loan applications or setting up automatic debit instructions than just purchasing items on EMI. The cheque reassures the financier of the validity of your bank account.

For a deeper understanding on why a cancelled cheque is necessary, how you can write one and when it comes handy, read on.

What is a cancelled cheque?

A cheque features your bank account number, cheque number, IFSC code, and the MICR (Magnetic Ink Character Recognition) code. In short, every leaf of your cheque book has your account details, and thus, by issuing a cheque you can authorise someone to transact with your account. However, issuing a blank cheque is hazardous, as someone can easily enter an amount to retrieve money from your account. In order to prevent the misuse, you must cancel the cheque.

While issuing a cancelled cheque, always remember to write the word ‘cancelled’ on it. Once you do this and cancel the cheque, you or anyone else is unable to use it for any transactions. However, the details mentioned on the cheque remain valid and you can use it to process various finance-related applications.

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How to write a cancelled cheque

Now that you know what a cancelled cheque is, here is how you can write a cancelled cheque and use it as a document for processing your applications. To write a cancelled cheque, you just need to follow two simple steps.

• Pick a fresh cheque to cancel it. Ensure that you do not put a signature on it
• Draw two parallel lines across the cheque
• Write the word ‘cancelled’ in between the lines in block letters
• Ensure that the parallel lines do not cover details, such as account number, account holder's name, MICR code, name, and branch address of the bank, on the cheque

Why and when is a cancelled cheque required

A cancelled cheque is an essential document in India for various financial transactions. It is primarily used to provide proof of a bank account and is often requested during loan applications, credit card issuances, and insurance purchases. Here are some of the common uses of a cancelled cheque:

• Proof of account: It serves as verification of the account holder’s name, bank details, and IFSC code, ensuring the correct details are captured for transactions.
• Direct deposit: Cancelled cheques are used to provide bank account details for salary credits, dividends, and refunds.
• Automatic payments: They authorise automatic bill payments like utility bills, EMIs, and insurance premiums.
• Know Your Customer (KYC): Required for KYC verification when investing in stocks, mutual funds, or other financial products.
• Employee Provident Fund (EPF): A cancelled cheque is necessary when withdrawing EPF funds to confirm your bank details.
• Electronic Clearing Service (ECS): To set up ECS for automatic payments or direct debits from your account, a cancelled cheque is required.
• Loans and NBFCs: Non-Banking Financial Companies (NBFCs) require a cancelled cheque to process EMI payments for loans.
• Opening a demat account: It is needed as part of KYC documents to verify bank account details when opening a demat account.
• Insurance: A cancelled cheque is required to process premium payments and other transactions with insurance companies.

By submitting a cancelled cheque, the correct bank account is linked to ensure smooth transactions and avoid disputes in the future.

Various uses of a cancelled cheque

The process of writing a cancelled cheque is very simple. There are numerous reasons for which you will need to issue a cancelled cheque. So, let us look at some of the common applications that requires you to submit this document.

When you buy high-value products on EMI, you need to submit a cancelled cheque to your financier to verify your bank details. For instance, Bajaj Finserv requires you to submit a cancelled cheque while applying for the Bajaj Finserv EMI Network Card to shop from the Bajaj Finserv EMI Network. Once you get the card, you can avail a pre-qualified card loan limit of up to Rs. 3 lakh to purchase electronics, home appliances, groceries, apparel, accessories, or furniture. You can shop from any of the 1.5 lakh+ partner sellers online or offline. You can also convert your purchase into Easy EMIs and repay the amount over a flexible tenure ranging from 1 month to 60 months.

You need to submit a cancelled cheque while applying for a loan. To register for Electronic Clearance Service (ECS) for any loan or credit purchases, you need to submit a cancelled cheque, so that the financier can directly deduct the amount from your account every month on a specified date.

Cancelled cheque also work as proof of payment as it comprises information like the name of the account holder, the bank account number, and the MICR code, which can be used to verify payments and track them down should any issues arise. The same applies for disputes or discrepancies related to payments as a cancelled cheque can help verify the date, amount, and recipient.

You may also have to submit a cancelled cheque when investing in mutual funds, provident funds, or an insurance policy. Once again, you need to do this only when you want to link your bank account with your investment and want payments to be deducted from your bank account automatically.

Risk associated with a cancelled cheque

Many people worry about the possibility of fraudulent withdrawals or misuse when it comes to cancelled cheques. However, it is important to understand that no such transaction can occur as cancelled cheques are legally cancelled. One should not worry about any misuse of the cheque, but it is important to follow the norm while cancelling cheques. Always use a blue or black ink pen while cancelling cheques as banks may reject those cancelled in other colours. Remember, you do not need to add your signature on the cancelled cheque since it is only used to verify banking details. Lastly, make sure to write the word 'Cancelled' after marking parallel lines on the cheque to avoid any issues later on. Forgetting to do so can lead to rejection of the cheque by the bank.

What is the difference between a stop payment and a cancelled cheque
 

Now that you know how to issue a cancelled cheque and its uses, you can enjoy a smoother banking experience. You can also get the benefits of shopping on Easy EMIs just as easily from the Bajaj Finserv EMI Network!

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Conclusion

In conclusion, cancelled cheques play a crucial role in financial transactions in India. While they may seem like a simple piece of paper, they serve as proof of payment and can be used as evidence in case of any disputes arising from the transaction. It is recommended that individuals keep a record of all cancelled cheques to ensure that they have evidence of their financial transactions. Moreover, it is important to remember that a cancelled cheque is not the same as a lost or stolen cheque, and appropriate measures should be taken in case of any such incidents. Therefore, it is crucial to understand the importance of a cancelled cheque in India and to keep them safely for future reference.