A cancelled cheque has no monetary value as it has been cancelled by the user. It can’t be used to withdraw or receive any amount. The basic purpose of a cancelled cheque is helping people with the KYC compliance at the time of availing some services.
Since a cancelled cheque contains all bank account details of a person, it is asked to verify the same while processing financial and other services.
You may have been asked by service providers to present a cancelled cheque while withdrawing your PF money, setting up ECS instructions and more. It is for the specific purpose that the bank account belongs to you. Once you have issued someone a cancelled cheque, it is of no worth. To avoid the misuse of a cancelled cheque, you must not sign it.
If you want to know about the uses, steps of issuing a cancelled cheque, along with cautions to follow, then this article will help you know more!
What are the uses of a cancelled cheque?
Why a cancelled cheque is asked when it has got no financial worth? Here are a few valid uses of the cancelled cheque and majorly for compliance or KYC needs. Have a look:
- For KYC purposes
A cancelled cheque is extensively used in complying with the Know Your Customer (KYC) processes and documentation. You may be aware that KYC is needed for many services such as mutual funds, investments, buying on EMIs and more. Hence, a cancelled cheque is needed to process your application smoothly and without delays.
- For bank account opening
If you look to open a current or savings or any other types of bank account, then the submission of a cancelled cheque becomes a must for most of the banks in India.
- For setting ECS instructions
Electronic Clearance Service (ECS) needs you to submit a cancelled cheque to enable the debit of money from your bank accounts towards periodic payments.
- For availing EMIs
Most of the banks and other agencies want you to furnish a cancelled cheque to process the calculation and finalizing of the EMIs. It is demanded while approving multiple loans such as home loans, personal loans, car loans and more. You may also be required to do that if you buy a product on EMIs by availing a consumer durable loan, which may be pre-approved.
- For the opening of a Demat account
You may want to invest in shares, but to do that; you would need a Demat account. And all service providers offering the Demat account facility would want you to submit a cancelled cheque. It is to be submitted with other basic documents and account opening form to meet the compliance needs.
- For buying insurance policies
You may wish to buy various insurance policies to save yourself from paying out of your pockets during emergencies and other circumstances. Cancelled cheques need to be furnished at the time of buying one to meet KYC or compliance requirements.
A cancelled cheque is a proof that you hold a bank account. And many institutions want it to keep a proper record so that there are no scopes of typographical errors.
What cautions to take while issuing a cancelled cheque?
You should ensure never to sign a cancelled cheque and always using a bold blue or black ink pen so that the word ‘cancelled’ may not be erased. This way, you can avoid your cancelled cheque from being misused.
How to issue a cancelled cheque?
Issuing a cancelled cheque is simple – you only need to draw two parallel lines diagonally and write the word ‘cancelled’ between them in bold or sentence case. While doing that, you have to ensure that any printed bank details are not overlapping the word ‘cancelled’ on the cheque.
The next time you are asked for a cancelled cheque, you may have an idea for what purposes it may be. Hence, you would be able to implement discussed aspects while avoiding frauds concerning it and issue it without confusion.
So these are the uses of cancelled cheque. So if you are issuing a cancelled cheque then, you should keep in mind the above things as told in the post. Hope it will clear all your questions and confusion regarding the cancelled cheque.