There are several instances where you might be asked to produce a cancelled cheque. Such kinds of cheques are generally not used for transaction purposes, instead serve as proof that the individual holds a valid bank account.
What’s a Cancelled Cheque?
A cancelled cheque is an original cancelled cheque leaf which bears an inscription ‘cancelled’ on it between two parallel lines drawn diagonally and therefore, has no transaction power. It is important to note that nothing else has to be written on a cancelled cheque. The purpose of a cancelled cheque is to avoid it being misused in any manner. In other words, no individual should be able to withdraw money from your account without your knowledge. A cheque consists of various details such as cheque number, account number, IFSC code and MICR code which may be misused if the cheque is not crossed and cancelled. Many banks demand cancelled cheques for RTGS as well.
Uses of Cancelled Cheques:
Cancelled cheques can be used for various purposes including compliance requirements such as listed below:
- KYC: Cancelled cheques are used extensively in Know your customer (KYC) procedures and documentation. KYC is required for various types of investments such as stocks and mutual funds among others
- Opening bank accounts: A prospective account holder (savings and current) has to submit a cancelled cheque to successfully open his or her account with a bank
- ECS: Electronic clearance service (ECS) requires submission of cancelled cheques to enable deduction of money from the accounts of customers regularly
- EMIs: All banks ask their customers to submit cancelled cheques to finish the process of calculating and finalising Equated Monthly Instalments (EMIs) for approving various types of loans such as home loans, education loans and car loans among others
- Demat account: To complete the process of opening a demat account, a cancelled cheque should be submitted to the concerned stock broker. The cancelled cheque has to be produced with various other documents such as ID proof and account opening form among others
- Insurance: Cancelled cheques have to be submitted while buying various insurance policies such as endowment, health or term policies
A cancelled cheque, acts as proof of an individual holding an account. Many financial organisations demand cancelled cheques for easier transactions as they require all the details of a customer’s account to avoid typographical errors. In other words, whether you want to start a SIP in a mutual fund or set up an ECS you will need to submit a cancelled cheque. A cancelled cheque need not have your signature. Also, no other details of your account mentioned on a cheque have to be striked out. In many cases, banks and financial institutions may require a photocopy of a cancelled cheque.