What is a Cancelled Cheque, and How do I Write One?

If you hold a bank account in India, you would surely know what a cheque is and may have used it at some point. Most banks issue a chequebook as part of the account opening kit. It is a financial instrument that has been used for several decades to make and receive payments between two parties.

A cheque works as a tangible form of payment. In the current world of digital banking, although the usage of cheques has reduced significantly, they are still relevant and serve many purposes. At some point, you may face a situation where you may feel the need to issue a cancelled cheque leaf.

Understanding what it is and how to write one is paramount to safeguard your financial interest and ensure you carry out the transactions smoothly and safely. This guide discusses everything you want about cancelled cheques, how to write one and more. Read on!

What is a cancelled cheque?

A cancelled cheque, as the name says it all, is a cheque that is rendered unusable or void by the person issuing the cheque. This is usually done by marking or writing ‘cancelled' on the cheque leaf across its face.

The main purpose of writing a cancelled cheque is to ensure that it is not misused by anyone or encashed. While a cancelled cheque may not hold any financial value or be processed by the financial organisations, it still retains its essential details like the issuer's bank account number, name of the person issuing the cheque, cheque number, and IFSC (Indian Financial System Code) and MICR (Magnetic Ink Character Recognition) code.

Writing a cancelled cheque – how to do it?

If you are not sure how to write a cancelled cheque, don't worry. The process is quite simple, and it involves the following steps:

• Step 1

  Choose a fresh/new cheque leaf from the chequebook. It is generally advisable to choose the first unused cheque in chronological order.

  
  

• Step 2

  Draw two horizontal lines across the face of the cheque leaf with a pen, preferably the one with indelible ink.

  
  

• Step 3

  Write ‘CANCELLED' between the parallel lines, preferably in bold letters. The word must be clear and legible. Also, ensure that the marking is prominent and covers the majority surface of the cheque.

  
  

• Step 4

  Although it is not compulsory, you must be extra careful while writing a cancelled cheque. This may include perforating the cheque leaf with a void stamp or writing for electronic clearance only beneath the cancellation marking.

  
  

• Step 5

  The last step in writing a cancelled cheque is to sign the cheque leaf in the designated signature space. All cheque leaves have a signature space, typically at the right corner of the cheque. However, it is important to note that signing the cancelled cheque is not mandatory.

  
  

  You can look at a few examples of cancelled cheques online, and you will find that the signature of the person issuing the cheque is included, while others don't have any signature.

  
  

Uses of cancelled cheques

As mentioned earlier, a cancelled cheque serves different purposes. And although the cancelled cheque cannot be presented to the financial organisation for encashing, it can still be useful. Let us look at some of its common uses:

• Verifying the bank account

  
  

  One of the most common and significant uses of a cancelled cheque is to verify the bank account details. When you open a new account or do any financial transaction, the financial organisation may require you to provide a cancelled cheque to authorise that you are the account owner.

  
  

  For example, if you are applying for any loan or purchasing an insurance policy from any NBFC (Non-banking Financial Company) like Udyog Plus, which is a part of Aditya Birla Finance Limited, you may have to issue a cancelled cheque as part of the initial KYC process.

  
  

  At Udyog Plus, you can get a loan at the most affordable interest rates and flexible repayment options. Also, the easy online application and quick approval process give you a smooth borrowing experience.

  
  

• Electronic clearing service

  Today, you may do most of your financial transactions, such as paying utility bills and EMIs (equated monthly instalments) for your loans or investing in mutual funds through ECS. When you request the financial organisation to debit the funds from your account to make these payments, they may need you to submit a cancelled cheque to authorise the fund transfer through ECS.

  
  

• Filing your taxes

  When you file your income tax returns, you must provide a cancelled cheque along with other documents for verification and receiving the refund (as applicable). The cancelled cheque contains your account details, and the tax authorities credit the refund (as applicable) to the said account.

  
  

• Insurance policies

  The insurance companies in India ask for a cancelled cheque when you purchase a policy and set up the premium payment method. You are also required to authorise your account details to process the claims.

  
  

• KYC compliance

  KYC stands for Know Your Customer. Today, all financial organisations require you to complete the KYC process, and they use a cancelled cheque to verify the account details. This also helps prevent any fraudulent transactions.

Conclusion

The cancelled cheque is an important financial tool that is required for completing various financial transactions. All the cancelled cheque leaves you issue can be used as proof of payment and even as legal evidence in a court of law in case of any dispute arising from the transaction. If you write any cancelled cheque, it is advisable that you keep a record of the same as evidence of the transaction.