With online services gaining popularity, a number of tasks can be processed in just few clicks. In India, banks are part of the financial driving source and have modernized to provide various services online. Ranging from fixed deposits, loans to savings account, the customer can access these services in the most convenient manner from anywhere using his/her internet compatible device. However, out of all such advancements, there are certain aspects under banking which need to be managed in a conventional way.
What is cancelled cheque? How it is important for traditional banking? All these questions might be popping in your head since the young population isn’t actually aware about the exact purpose and utility of a cancelled cheque. Issuing a cancelled cheque needs to be processed manually and does hold vital significance in several banking procedures. Hence, let us try to learn about this crucial banking document in-depth for building a better understanding.
Cancelled Cheque Definitions & Aspects
In India, a cancelled cheque simply refers to any cheque which consists of strike marks on it along with the words ‘cancelled’ written across. What is cancelled cheque value? This type of cheque is regarded as a proof for opening an account with any bank. Apart from this, a cancelled cheque is required in many other cases.
There is another definition of a cancelled cheque that should be read and understood. A cancelled cheque is a cheque payment for which the mentioned amount of cash has been taken out from the payer’s checking account. The moment the cash drawdown is finished; the bank stamps that particular cheque as cancelled. After a cheque is cancelled it cannot be further used as an authorization for the removal of additional funds from the payer’s account.
- It is important to know that, a cancelled cheque needs to pass through a set of payment activities, which covers the following steps:
- Received by the payee
- Authorized by the payee
- Deposited using the payee’s bank
- Drawee bank pays to the payee bank
- Cash is deposited in the payee’s account through the payee bank
How to Issue a Cancelled Cheque?
One needs to be informed about the proper issuing of a cancelled cheque. The steps involved are not that complicated but should be executed with an alert mind. You need to draw two parallel lines across the cheque and add the word ‘Cancelled’ in between those two lines. Always remember that a cancelled cheque doesn’t ask for your signature. It offers details such as account holder’s name, account number, MICR code along with name and branch address of the concerned bank.
Although withdrawing money using a cancelled cheque isn’t possible but fraudulent activities using this important banking document leaf has taken place quite a few times in the recent past. Therefore, it is necessary for you to be very careful while issuing a cancelled cheque. Make sure the person to whom you are offering the cheque is trustworthy.
Different Applications of Cancelled Cheques
In this present day scenario, almost all investment organizations give supreme importance to Know Your Customer (KYC) guidelines. Therefore, if you are aiming to invest in Mutual Funds or stock market, the company or financial body will ask for a cancelled cheque in order to verify if the account linked with the investment actually belongs to you or not.
Following are the prime areas from our daily life where the requirement for a cancelled cheque is quite essential:
- Opening Bank Account– A customer who is aiming to open a savings or current account with a particular bank needs to submit a cancelled cheque for successfully concluding the account opening process.
- KYC– For most banks these days, Know Your Customer (KYC) has become quite essential in regard to different investments connected to an individual or organization. The need for a cancelled cheque in KYC proves useful for active participation in stock investments and mutual funds.
- ECS– A cancelled cheque is also required for Electronic Clearance Service (ECS). It is basically the monthly deduction of money from your accounts and is popular for mutual funds.
- EPF Withdrawal– The withdrawal procedure for Employee Provident Fund (EPF) also comprises the issuing of a cancelled cheque. The cancelled bank leaf needs to be presented either to the organization or the EPFO. This acts as a proof for the organization to validate your account details.
- EMIs– For accessing different types of loans like home loans, education loans, car loans,, the EMI payments are an essential component. EMIs are also useful for purchasing mobiles, electronics, etc. Hence, the bank or company does ask for a cancelled cheque to process these EMIs.
- DematAccount – For an individual who wishes to trade or invest in the stock market, a demat account has to be maintained. For this purpose, a cancelled cheque is required to be submitted to the stock brokerage in addition to the account opening form, address proof, ID proof,
- Insurance Policy– Whenever a person purchases an insurance policy such as money back, term, endowment, health, etc, there is a need to submit a cancelled cheque to the agent or organization.
Is it Necessary to Sign a Cancelled Cheque?
One must always be aware of the fact that the submission of the cancelled cheque is only considered if it is a personalized cheque; non personalized cheques aren’t acknowledged for submission. Also, the prime motive of a cancelled cheque is to confirm the IFSC/MICR codes or Account Numbers only. Looking at both these cases, there isn’t any requirement or need to sign the cancelled cheque.
Cancelled Cheque Different from Bounced Cheque
If you have already got the answer to ‘what is cancelled cheque?’, then it would be easy to differentiate it from a bounced cheque.
- A situation of cheque bounce is focused to define an unsuccessful processing of an issued cheque with an aim for money transfer due to varied reasons.
- One of the primary reasons for cheque bounce is insufficient funds (NSF) managed in the issuer’s account. Under such a situation, banksdishonor or return the cheque, with the imposition of a particular charge. It is crucial to note that, passing of bad cheques is counted illegal and the crime can grow intense depending on the amount involved.
On the other hand, a cancelled cheque is a manual and self-managed issuing of a ‘proof’ document which serves different banking purposes apart from direct cash transactions.
What Happens after your Cheque is Dishonoured?
Since cheque bounce is considered as an illegal act, different financial bodies in India do charge a specific amount to the remitter. However, there are situations when the beneficiary/payee is also part of the charges imposed for the mistake. For example, if you have written a check for an appliance store and the check gets bounced. Here the store is offered the right to redeposit that cheque along with the bounced cheque charge. Later, the consequences would be faced by you as well, since the report when submitted to the financial bureaus can make it hard for you to open savings and current accounts in the near future.
Q.1: Can a cancelled cheque be used multiple times?
Ans. Yes, same cancelled cheque can be used multiple times.
Q.2: Can I cancel the cheque using red ink?
Ans. You should always use a black or a blue ink to cancel the cheque. No other colours are accepted.
Q.3: Why do employers ask for a cancelled cheque?
Ans. It is needed to update the bank account in which salary will be credited.
Q.4: Can a cancelled cheque be misused?
Ans. Even though a cancelled cheque is used for validating purpose. It can still be misused by fraudsters.
Q.5: What should you do with a cancelled cheque once the purpose has been fulfilled?
Ans. After using the cancelled cheque, you must shred it so that it cannot be misused.
Q.6: What is the validity of a cancelled cheque?
Ans. A cancelled cheque can be used till the time details mentioned in the cheque are valid.