Do you know what a cancelled cheque is? If you are unaware of this phenomenon, then you can go through this short post and know more.
What is a cancelled cheque?
A cheque is known as ‘cancelled’ when you draw two lines across it and simply write the word ‘cancelled’ on it in between those lines. Other than ‘cancelled’ written inside the two lines, you don’t need to write anything else on it. The cancelled cheque has no monetary value. It means that you can’t use it for funds transfer from one account to another.
You now know what a cancelled cheque is and how to write a cancel cheque, but what is the intention of doing so? The intention behind the issue of such a cheque is to ensure that it is not misused by anyone.
When a cheque gets cancelled as discussed, then it is used as a common KYC document. It is used by banks and other financial institutions for verifying your bank account.
It becomes possible to do that easily as a cheque features your name, account number, cheque number, IFSC Code and MICR Code. If you don’t cross and cancel a cheque, it can be misused if it lands in the wrong hands.
What are the uses of a cancelled cheque?
You should know that a cancelled cheque is used for many purposes, such as:
- KYC purposes – Cancelled cheque are majorly used for KYC purposes and documentations. If you want to invest in mutual funds, open a bank account, avail a loan, buy products on EMI, then the service provider may ask for a cancelled cheque.
- EPF withdrawal – If you want to withdraw your provident fund money, then cancelled cheque is needed to be submitted. If you are a salaried individual looking to withdraw money from your EPF account, then you will need to attach a cancelled cheque with the withdrawal form and submit it to EPFO. Your cheque helps in confirming the bank account to which the amount to be credited.
- Electronic Clearance Service (ECS) – ECS is known as the electronic mode of transfer that provides for paperless transaction from one bank to another. In case if you wish to use ECS to get an amount deducted from your account each month, then cancelled cheque to verify your bank details will need to be submitted.
- Demat account – You may also be required to submit a cancelled cheque at the time of opening a Demat account. It is along with the account opening form and other KYC documents.
- EMIs – The facility of dividing the cost of a product that you want to buy over a suitable tenor and paying EMIs is now fast catching up in India. This way, you can fulfil your wish of buying a costly product without having to hurt your wallets by paying for it at once. Banks nowadays also offer loans that can be repaid in EMIs. All such banks issuing loans on EMIs and consumer durable loan to help you buy anything on EMI will need you to submit a cancelled cheque.
- Insurance – When you buy an insurance policy such as health plan, term plan or endowment plan, then you will be asked to provide a cancelled cheque to the insurance service provider for documentation purposes.
You are now aware of how to cancel a cheque and its multiple purposes. You should ensure never to sign a cancelled cheque even if it carries no monetary value. Your bank issues cheque books, which you can get more if you have used them over the years.