What is Cancelled Cheque and How to Write One?

Cheques are documents on the issue of which one can instruct their bank to pay money on their behalf to the receiver of their choice. In today's online banking age cheques have been almost abandoned by most who prefer operating in the comfort of their homes. But it is crucial to know what a cancelled cheque could mean and be used for.

A cancelled cheque is a cheque where two lines are drawn parallel to each other, and the word ‘CANCELED’ is written in between those lines. Essentially it is to ensure that the cheque does not get misused any further in the process of KYC . note that one does not really have to sign a cancelled cheque for it to be engaged.
Cancelled cheques primarily help to validate user information such as IFSC code (Indian Financial System Code), MIRC code (Magnetic Ink Character Recognition Technology), account number, bank branch details, account holder's name. It is especially important to be mindful while issuing a blank cheque as the possibilities of fraud or misuse are high.

Writing a cancelled cheque is not a complex process. But it is important to be careful and attentive throughout. Here is how you can write a cancelled cheque: Step 1: Pick a fresh leaf from your check book to cancel. Step 2: Use a dark, bright pen and draw two diagonal parallel lines across the cheque. Step 3: Do not fill in the details such as name, amount, sign etc. Step 4: Write the word ‘CANCELLED’ in bold capital letters. Step 5: Ensure that your strikes do not cover any of the essential details such as IFSC code or MIRC code, account holder’s name.Just to be sure, on a safer side, flip the cheque and write ‘CANCELLED’ on the back of the cheque.

1. Demat account: If one is planning to open a , then their brokerage company may ask for a cancelled cheque to check if their clients bank information matches with the account holder's intel. Other KYC documents and proof of address are also required.
2. Employee Provident Fund withdrawal: In case of the process of withdrawal demands for a cancelled cheque as well.
3. Equated Monthly Instalments: In case of EMIs, prior to the confirmation of an EMI for a certain loan or credit the banks always request for a blank cheque. It is an important part of the process as the information on the cheque is used to process your EMI payments. It also helps the NBFCs to verify the user information.
4. KYC completion: As discussed earlier in the introduction, cancelled cheques are major documents required in the completion of your KYC before investing in the equities, funds or markets in general.
5. Investing in an insurance policy/ mutual funds: Whether it be purchasing an insurance policy or or a contribution towards an EPF. if one desires the deposit to be deducted automatically, they must issue a cancelled cheque to obtain such facilities.
6. Electronic clearance service: Electronic clearance service is the process of transferring funds electronically from one bank to another using the services offered by the clearing house. It comes in handy for bulk transactions from one user to several or vice versa. It helps execute yearly/quarterly/monthly/ semi-annual payments of interest/ salaries/commissions etc. hence to activate the service of electronic clearance one must submit a blank cheque to their bank.

Despite the cheque being technically useless and lack financial value it is best to hand it directly to an authoritative figure as soon as it is issued. The cheque leaf still holds other important user information and codes, so it is best to stay vigilant. Also Read : How Mutual Funds Work?