What is a Cancelled Cheque?
The premise is as straightforward as the phrase itself. A cancelled cheque has been voided or cancelled. It is quite useful.
When two lines are drawn across a cheque and the word “cancelled” is written between the two lines, it is referred to as a “cancelled check.” A cheque that contains the characteristics mentioned above cannot be utilized to transfer any funds. However, it serves as a critical KYC document. Now that we’ve clarified what a cancelled cheque is let’s look at some of the other facets of the phenomena.
| However, it serves as confirmation that the person has a bank account. In addition, it comprises additional data such as the name of the account holder, account number, IFSC Code, MICR code, name, and branch of the bank in which the account resides. |
How to make a cancelled cheque?
To make a cancel cheque, just strike two lines across it and write the phrase “Cancelled.” Do not sign as it is a cancelled cheque. It serves merely as evidence that you have a bank account. The account holder’s name, branch name and address, account number, and MICR code on the cheque are sufficient to present as evidence.
It is identical to a conventional cheque. The following are the components of it:
- Name of the bank
- Name of the branch
- Name of the account holder
- Account number
- IFSC code
- MICR code
Cancelled Cheque Sample Image
However, if you examine the cancel cheque sample, you will see the difference. Additionally, between two parallel lines, the phrase ‘cancelled’ will be printed across the cheque. Below is the cancelled cheque sample or format.
When is a Canceled Cheque Required?
It is necessary for the following financial transactions:
KYC Completion
You’ve probably heard of KYC! KYC stands for Know Your Customer. It refers to how financial institutions request various papers to verify an individual who engages in financial activity properly.
It is one of the papers necessary when investing in the stock market, mutual funds, or any other market-linked investment since the cancelled cheque establishes your status as a bank account holder and provides your banking credentials.
Financial organizations need this document as verification that the person has a bank account, the account holder’s name and account number, and the bank’s name and branch location. Also read:- What Is Video KYC – A Complete Guide
Electronic Clearance Services:
Electronic Clearance Service, or ESC, enables you to conduct paperless debit, credit, or other financial transfers between accounts. This is a technique in which a service provider or an investment firm debits a set amount of money from your bank account on a monthly, quarterly, half-annual, or yearly basis.
For example, you may have authorized ECS for monthly utility bills such as electric, water, and internet. The service provider or investment firm may request a cancelled cheque from which you want the money deducted directly by the service provider or investment business.
This will give the service provider or investment firm the required information, who will enter the information into their ECS system, and the funds will be withdrawn automatically when the time comes. Also read :- ICEGATE – Guide on What is ICEGATE? and How Does it Work?
EMI
We often purchase various items on credit and then pay them off in smaller instalments later. EMI alternatives are available on various loans, including home loans, car loans, education loans, etc. The bank or corporation would require a cancelled cheque to complete the legalities associated with assigning such monthly payment options.
Demat Account:
Individuals use a Demat account to keep shares in an electronic format. However, you cannot just go into a bank and request such an account. You will be required to complete a form and provide supporting documentation such as identification and proof of residence.
Additionally, a cancelled cheque is needed. This together with other supporting documentation, will be sent to a stock brokerage company. The company will use the information on the cheque to enable auto-debit and auto credit on your Demat account.
Your savings account will be connected to your Demat account, and any money transfers between the two accounts will take place electronically.
EMPLOYEE PROVIDENT FUND withdrawal
If your EPF account has matured or you want to make an early withdrawal, you will be required to provide not only a properly completed form but also a cancelled cheque. EPFO or Employees Provident Fund Organization will utilize the information on the cheque to credit the funds straight to your bank account.
Also read:- Top 5 Strategies To Save Tax At The Last Minute
Bank Account Opening: A cancelled check must be presented to complete the procedure of opening a bank account. This may be requested in the event of a savings bank account or even a current account.
Insurance Policy: We’ve all heard of insurance policies and what they may be used for. If you’re buying an insurance policy such as moneyback, endowments, or health, you’ll be asked to provide a cancelled cheque. The insurance premiums will be deducted straight from your savings account. When purchasing insurance coverage, some organizations demand the purchaser to provide a cancelled cheque.
Dispatch of loans: We often borrow loans. Loans may be used for various purposes, including education, marriage, house, or just as a personal loan. As of right now, no lending business will offer loans in cash. The loan money is always credited straight to your bank account. As a result, they will need a cancelled cheque to utilize the information to transfer the funds straight to your bank account.
Also Read: Top 10 Benefits Of Accepting Credit Cards For Payments
Difference Between Stop Payment And Canceled Cheque
| STOP Payment | CANCELED Cheque |
| In the case of STOP Payment, the cheque will be transactional | In this case, the cheque is worthless as a means of payment |
| The word “CANCELED” is not written | The word “CANCELED” is written |
| It is utilized in insufficient funds in an account against a cheque to make a payment or when a cheque is misplaced, or when you want to halt a payment intentionally. | It is used to provide information such as the account holder’s name, account number, the bank’s name, IFSC code, MICR code, and the bank branch’s name. |
| You must expressly instruct a bank to halt payment on a cheque by issuing a ‘stop payment’ order. | In this case, no such order is necessary since a it lacks transactional authority and will never be utilised by the bank to make a payment. |
| A bank may charge a modest fee for cancelling a cheque payment | Bank charges nothing. |
Risk Associated With Cancel Cheque
While providing a canceled cheque is a common practice in various financial transactions, it’s important to be aware of potential risks associated with sharing a canceled cheque. Here are some risks:
Fraudulent Activities: The canceled cheque contains essential banking information, such as the account number and MICR code. If it falls into the wrong hands, there’s a risk of fraudulent activities, including unauthorized withdrawals or identity theft.
Unauthorized Transactions: If someone gains access to the canceled cheque, they may use the information to initiate unauthorized transactions, including electronic fund transfers or setting up automatic payments without the account holder’s consent.
Impersonation: Canceled cheques may contain the account holder’s signature, which can potentially be misused for fraudulent activities or impersonation. This risk is especially relevant when the canceled cheque is shared without proper precautions.
Account Manipulation: Fraudsters may attempt to alter the information on the canceled cheque, such as the payee name or the amount, leading to unauthorized transactions or financial losses.
Forgery: The canceled cheque may be replicated or forged to create counterfeit cheques, which could be used to deceive banks or other financial institutions.
Privacy Concerns: Canceled cheques may reveal personal information, and their misuse can lead to privacy concerns. This is particularly important given the increasing focus on data protection and privacy regulations.
To mitigate these risks, individuals should exercise caution when sharing canceled cheques and take the following precautions:
- Share canceled cheques only with trusted entities and for legitimate purposes.
- Avoid providing canceled cheques to unknown or unverified individuals or organizations.
- Consider using alternatives, such as electronic fund transfers, when possible.
- Monitor bank statements regularly to identify and report any unauthorized transactions promptly.
- If a canceled cheque is no longer required, destroy it securely to prevent unauthorized access.
It’s advisable to stay informed about the potential risks associated with canceled cheques and take necessary steps to safeguard personal and financial information.
Conclusion- A cancelled cheque is one technique to guarantee that no one may get unauthorized access to your account. It retains information such as the account number, the account holder’s name, the IFSC code, the MICR code, and the bank’s name. Always avoid affixing your signature to a cancelled cheque; otherwise, scammers may be able to recreate the same.
FAQs
Q1. How to cancel a cheque?
By crossing two lines and writing “CANCELLED” between these two lines.
Q2. Which situations necessitate the use of cancelled cheques?
They are helpful in various situations where they are required as part of the requirements for various processes such as KYC, EMI, ECS, opening bank accounts, or choosing an insurance policy when establishing a Demat account when withdrawing PF, etc.
Q3. Can I cancel a check using a red pen?
Always use blue or black ink when writing or cancelling a cheque. Any other colour will be deemed unacceptable.
Q4. What information may be gleaned from a cancelled cheque?
The information on it may include your bank account number, branch name and location, and MICR code.
Q5. Is there any danger associated with cancelling a cheque?
It cannot be used to extract money from the account.
Q6. Do we need to sign on cancelled cheque
You should not sign it since it may be abused. No process requires the submission of a signed cancelled cheque.
Q7 Can we use cancel cheque for GST registration?
A bank statement, a cancelled check, or an extract from your passbook can all be used to prove your bank details. Similarly, an address evidence can be in the form of an electricity bill, a rent agreement, or ownership documentation.