Guide to Cancelled Cheques: Writing, Uses, and Examples

A cheque is a financial instrument that authorises financial institutions to pay its holder on behalf of the issuing party. They  can also be used  in KYC procedures, for example, when you open an equity account to trade in securities. During this process, you are asked to submit a cancelled cheque.

A cancelled cheque works as evidence that shows that you have an account with a particular financial institution. Details such as the IFSC, account number, MICR code, and cheque number printed on the cheque leaf can help verify the existence of an account. A cancelled cheque can be recognized by the words ‘CANCELLED’ written across it.

How to Cancel a Cheque?

To cancel a cheque, draw two parallel diagonal lines across it and write the word ‘Cancelled’ in block letters between the lines. However, make sure that essential information on the cheque, such as the MICR code, IFSC, cheque number, and account number, remains legible. In addition, to avoid any delays in the KYC process, always use a fresh cheque that clearly displays all your account information. Torn cheques or those with unclear information might not be accepted and can delay your KYC process.

Cancelled Cheque Sample

The above illustration shows a cancelled cheque with two parallel diagonal lines drawn across it along with the word ‘Cancelled’ written in block letters. Ensure that the lines you draw do not pass through any essential account-related information present on the cheque.

Does the Cancelled Cheque Need a Signature?

One of the most common doubts that people have is whether you should sign a cancelled cheque. You should never sign a cancelled cheque as it may be misused. A signed cancelled cheque is essentially a blank cheque with the word ‘cancelled’. The cancelled cheque is used as a KYC document only to provide evidence that you have an account with a specific financial institution. Hence, there is no need to sign it.

Where do I Write my Name on a Cancelled Cheque?

Your name and account number along with other key information are already printed on the cheque. You should not write anything other than the word ‘cancelled’ (in capital letters) on the cheque. The word cancelled itself suggests that the cheque is not valid anymore for financial transactions.

What is a Cancelled Cheque Used For?

We already know how to properly cancel a cheque. Let us now talk about the uses of a cancelled cheque. A cancelled cheque acts as a KYC document in the following situations:

• Payment of EMIs- When you purchase a high-value item such as a motor vehicle, you might avail the EMI option for payment. For this option, the seller would require you to submit a cancelled cheque to verify your information with the respective financial institution and provide you with EMI facility.
• Withdrawal of EPF- To verify the account information of the person making a withdrawal from the Employee Provident Fund (EPF), you are asked to submit a cancelled cheque.
• Taking ainsurance policy- The policy amount is transferred to your account after its maturity. Hence, the insurer needs a cancelled cheque to verify account details where the proceeds will be transferred. Nowadays, the insurance premium is directly deducted from the account of insured person because of Electronic Clearance Service (ECS) facility. To avail this facility also, you need to submit a cancelled cheque. 
• Opening a Demat account- Securities in the equity market are bought and sold through a Demat account. When you open a Demat account, along with the application form and other documents, you are also required to submit a cancelled cheque. Your Demat account will thus be linked with the account number mentioned on the cancelled cheque you provided.
• Obtaining a personal loan-  Whenever you avail a personal loan for funding needs such as marriage expenses or for repayment of any sudden debt, you are required to verify your account details where the loan amount will be credited. Hence, your financer will require you to submit a cancelled cheque.

Also read: 5 Factors That Affect Your Personal Loan Eligibility

Different Uses of a Cancelled Cheque

A cancelled cheque has numerous applications in the financial world. It is an important document used in various processes for validation and verification.

1. Opening a Bank Account: To confirm bank account details.
2. ECS (Electronic Clearing Service): For automated transactions like salary credits or loan repayments.
3. KYC Process: As proof of account details.
4. Loan Applications: To verify account information.
5. Insurance Policies: For claim settlements.
6. Mutual Funds: To link your bank account.
7. EPF Withdrawal: To authenticate your account for fund transfer.

Difference Between A Stop Payment And A Cancelled Cheque?

Understanding the difference between a stop payment and a cancelled cheque is crucial for managing your financial transactions effectively.

Conclusion

A cancelled cheque acts as a KYC document to verify the authenticity of an account with financial institutions. For cancelling a cheque, you only have to draw two parallel diagonal lines across the cheque and write the word ‘cancelled’ in block letters between them. However, you should never put your signature or any other personal details on a cancelled cheque as the cheque may be misused by fraudsters.

Frequently Asked Questions

1. How Do I Write A Cancelled Cheque?

To write a cancelled cheque, draw two parallel diagonal lines across the cheque and write the word ‘Cancelled’ in block letters between the lines. Make sure essential information like the MICR code, IFSC, cheque number, and account number remains visible.

2. Do I Need To Sign A Cancelled Cheque?

No, you should not sign a cancelled cheque. Signing it may pose a risk of misuse. A cancelled cheque is used only to verify account details and does not need a signature.

3. Can A Cancelled Cheque Be Used For Financial Transactions?

No, once a cheque is cancelled, it cannot be used for any financial transactions. It is only used to verify account information.

4. How To Write A Cancelled Cheque With Name?

You do not need to write your name on a cancelled cheque. Your name and other necessary details are already printed on the cheque. Simply draw two parallel diagonal lines and write ‘Cancelled’ between them. Do not add your signature or any other information.