Although a cancelled cheque is asked in a lot of places, not everyone knows the purpose of it. In here, find out what is a cancelled cheque, and all in all where it is used and how you can prevent it from getting misused.
A cancelled cheque is a normal cheque marked as “CANCELLED”. The term is written between two parallel lines that are drawn diagonally. Furthermore, please note that nothing else is written on the cheque. As the cheque has an inscription “CANCELLED” across, the cheque cannot be misused but will provide the important information such as account number, cheque number, MICR code and IFSC.
A cancelled cheque all in all is required in the following situations:
→ Know Your Customer(KYC)
Cancelled cheque acts as a vital document for KYC, especially in mutual funds, stock investments, and others. It is considered as a proof of holding an account.
→ Bank Account Opening
A cancelled cheque is required to be submitted by a prospective lender when opening a savings or current account with a bank. This is done at the final stage of documentation to complete the account opening process.
→ Demat Account Opening
A cancelled cheque is submitted along with other documents such as account opening form, ID proof, address proof, etc. to the stock brokerage. Not to mention, a demat account is needed for anyone who wants to trade in the stock market.
→ Insurance policy
You must submit a cancelled cheque when purchasing any kind of insurance policy including term, endowment, money back, health, and others. This cheque is generally submitted to the organisation or an agent.
→ EPF withdrawal
If you wish to withdraw an amount from your EPF account, you are required to submit a cancelled cheque to the organisation or EPFO. This helps the organisation or the EPFO to validate your bank account details.
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ECS or Electronic Clearance Service is used to deduct an amount every month from your account. In fact, it is quite popular for mutual funds and requires a cancelled cheque to complete the documentation process.
In certain cases, an individual can submit a cancelled cheque for different types of loans such as home loans, education loans where EMI payments are involved. This, as can be seen, helps the lender to finish the credit process and finalise Equated Monthly Instalments(EMI).
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→ It acts as a proof of holding an account. In fact, it is mainly demanded as they require all information related to the customer’s account.
→ It helps in eliminating typographical errors.
→ For a cancelled cheque to be valid, nothing else is written on the cheque apart from “CANCELLED”. Also, it is important to not strike any other detail on the cheque.
→ In certain cases, a copy of your cancelled cheque is required.
Although a cancelled cheque cannot be used to withdraw money, it is advisable to give it to the right person so that it is not misused.
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