Cancelled Cheque – Everything You Need to Know

A cancelled cheque is a crucial financial document that plays a significant role in various banking and financial transactions. While it may seem like just a piece of paper with the word “CANCELLED” written on it, it serves as an essential tool for verification, authorization, and account validation.

In this detailed guide, we will cover:

✔ What is a cancelled cheque?
✔ Why is it required?
✔ When do you need to provide one?
✔ How to properly cancel a cheque?
✔ Precautions to take when submitting a cancelled cheque
✔ Frequently asked questions

Let’s dive in!

What is a Cancelled Cheque?

A cancelled cheque is a cheque that has been crossed with two diagonal lines and marked with the word “CANCELLED” written in bold across it. It is not used for making payments but serves as a proof of ownership of a bank account.

Even though a cancelled cheque is not a negotiable instrument, it still contains important banking details, such as:

• Bank’s Name & Branch
• Account Holder’s Name (if printed on the cheque)
• Account Number
• IFSC Code (Indian Financial System Code)
• MICR Code (Magnetic Ink Character Recognition Code)

Since a cancelled cheque does not have a signature, it cannot be used to withdraw funds but is widely used for verification and processing of financial transactions.

Why is a Cancelled Cheque Required?

A cancelled cheque is required in various financial situations where account verification is necessary. Organizations request a cancelled cheque to ensure that the bank details provided by an individual match the official banking records.

Here are some common scenarios where you might need a cancelled cheque:

1. Bank Account Verification

When you open a new bank account, whether savings, current, or salary, banks often ask for a cancelled cheque to verify your account details.

2. Loan Applications

For loans such as:
✔ Home loans
✔ Personal loans
✔ Business loans
✔ Car loans

Banks and financial institutions use a cancelled cheque to verify the borrower’s account before disbursing the loan amount. It also helps in setting up EMI deductions for loan repayments.

3. Automated Payments & ECS (Electronic Clearing Service) Mandates

A cancelled cheque is necessary when setting up:

• SIP (Systematic Investment Plan) for mutual funds
• Recurring bill payments (electricity, water, gas, mobile, etc.)
• Loan EMI deductions

These payments require linking a bank account, and a cancelled cheque helps in ensuring the correct account is linked for automatic debits.

4. EPF (Employee Provident Fund) Withdrawals

If you want to withdraw money from your Employee Provident Fund (EPF), a cancelled cheque is required to process the request. The Employees’ Provident Fund Organization (EPFO) asks for a cancelled cheque to confirm that the funds are deposited into the correct bank account.

5. Investment & Stock Market Trading (KYC Process)

To open a Demat account or invest in stocks, mutual funds, or bonds, financial institutions require a cancelled cheque as part of the KYC (Know Your Customer) verification process. This ensures that the funds used for investments and withdrawals are linked to the correct account.

6. Insurance Policy Premiums & Payouts

For buying life insurance, health insurance, or vehicle insurance, a cancelled cheque is required to:

• Set up auto-debit for insurance premiums
• Process policy payouts and maturity claims

7. Employer Salary Account Setup

When you join a new company, HR may request a cancelled cheque to set up your salary account to ensure monthly salaries are credited to the correct bank account.

8. EMI & Credit Card Payments

Banks and financial institutions require a cancelled cheque to link a bank account for auto-debit of EMIs and credit card bill payments.

9. Refund Processing for Cancellations

When you request a refund for travel bookings, insurance cancellations, or investment redemptions, companies may ask for a cancelled cheque to verify your bank account before transferring the refund amount.

Is a Cancelled Cheque Safe to Give?

Yes, a cancelled cheque is safe to provide, as it does not contain your signature and cannot be used for transactions. However, there are still some important precautions you should take to prevent fraud.

Precautions to Take When Providing a Cancelled Cheque

✔ Always write “CANCELLED” in bold letters across the cheque.
✔ Do not sign the cheque to prevent misuse.
✔ Hand over only to trusted institutions such as banks, employers, or verified financial service providers.
✔ Ensure all details are clearly visible, including the bank name, IFSC code, and account number.
✔ Do not leave extra blank cheques unattended, as they can be misused.

How to Write a Cancelled Cheque?

It’s simple to cancel a cheque. Follow these steps:

Step-by-Step Guide

1. Take a blank cheque from your chequebook.
2. Draw two diagonal lines across the cheque.
3. Write “CANCELLED” in bold letters between the lines.
4. Do not sign the cheque.
5. Ensure that the bank details (account number, IFSC code, MICR code) are clearly visible.

Once done, the cancelled cheque is ready to be submitted!

FAQs on Cancelled Cheques

1. Can a cancelled cheque be misused?

No, a cancelled cheque cannot be used to withdraw money since it does not contain your signature. However, it should still be given only to trusted entities.

2. Can I use a photocopy of a cancelled cheque?

Some organizations accept a photocopy, but others may require the original cheque for verification purposes.

3. Do I need to fill in any details before cancelling a cheque?

No, you do not need to fill in any details like payee name, amount, or date. Just cross it with two diagonal lines and write “CANCELLED.”

4. What if I don’t have a chequebook?

If you do not have a chequebook, you can provide:
✔ A bank statement with account details
✔ A personalized deposit slip
✔ A bank verification letter

5. Does a cancelled cheque have an expiry date?

No, a cancelled cheque does not expire, as it is not used for transactions. However, some institutions may request a recent one (within 3-6 months).

Final Thoughts

A cancelled cheque is an important banking document used for verification, loan processing, salary account setup, investments, and more. While it is safe to use, always ensure that you provide it only to trusted institutions and never sign it.

Now that you understand the significance of a cancelled cheque, you’ll be better prepared the next time you’re asked to provide one!