written by Khatabook | January 10, 2022

Meaning and Need for a Cancelled Cheque

Cheques are one of the most widely used and traditional banking instruments in India. With the advancement of technology, transactions can now be completed online with the click of a few buttons. On the other hand, cheques are still widely used by those who are wary of internet techniques or who find them inconvenient. Everyone uses a cancelled cheque as proof of specific bank account ownership. In this article, you will learn what a cancelled cheque is, how you write one, and when you require a cancelled cheque.

Did you know?

The first cheque facility was established in 1770 and was introduced in India by the Bank of Hindustan.

What is a Cancelled Cheque, and How Do You Write One?

A cheque is a promissory note instructing a bank to pay a certain sum from the drawer's bank account to whomever the cheque is issued to or to the order of the specified person or the bearer of the cheque. A cancelled cheque has two lines crossed across it and the word "cancelled" written. It demonstrates that the individual has a bank account, which cannot be utilised to withdraw funds. Aside from that, there is no need to sign or write anything on the cheque. The reason you are being asked to cancel the cheque is to ensure that it is not used in an illegal or unethical way. 

A cancelled cheque also retains other information, such as the account holder's name, account number, magnetic ink character recognition (MICR) code, Indian Financial System Code (IFSC) code, name and branch of the address where the account holfder resides, and the cheque number, even if it cannot be used to withdraw money from the drawer's account.

There are three parties to a cheque:

  • Cheque Drawer: The drawer is the individual who signs the cheque or instructs the bank to pay a certain sum of money via a cheque.
  • Drawee of the cheque: The drawee of the cheque is the bank that has been ordered to pay the stated amount according to the cheque.
  • Payee: The payee is the individual to whom the bank must pay the money.

Open cheques, self-cheques, bank cheques, crossed cheques, stale cheques, and cancelled cheques are among the several types of cheques.

Process of writing Cancelled Cheques

To cancel a cheque, just strike two lines across it and write the word "Cancelled" in the middle. If you're cancelling a cheque to submit it for a specific purpose, follow these steps:

Step 1: Remove a new cheque from the cheque leaf you want to cancel. On the cheque, do not sign anywhere.

Step 2: Across the cheque, draw two parallel cross lines.

Step 3: In capital letters, write "CANCELLED" between those two lines.

It's vital to note that the parallel lines you draw across the cheque leave out important information like the account number, account holder's name, IFSC code, MIRC code, name and branch address of the bank where the account is held, and so on.

If you want to cancel a cheque due to a mistake on the cheque, go to step 2 of the process as described above.

Nobody can get money out of a cancelled cheque, but it can be used for various fraudulent acts. To be safe, don't sign a cancelled cheque and give it to the proper person in charge of collecting it.

Also Read: What Are Debit and Credit? Bookkeeping Basics Explained

How to write an HDFC Cancelled Cheque?

Customers of HDFC Bank have access to a variety of services designed to make their lives easier. Cheques, debit cards, credit cards, and various other services are available through the bank. To keep your bank account open, you'll need a variety of documentation.

In a bank, you can need a Cancelled cheque for various reasons. The cancelled cheque can be used for a variety of financial tasks and loans.

  • To write a cancelled cheque, take a fresh cheque leaf from your HDFC Cheque book and do not sign it.
  • The following step is to draw two parallel lines across the cheque.
  • After that, write the word "CANCELLED" in capital letters between the parallel lines. 

When do you require a Cancelled Cheque?

While transacting in the bank, you may have come across the term "cancelled cheque" several times. On the other hand, cancelled cheques aren't just for banking transactions. Here are some of the most typical uses for a cancelled cheque:

  • Electronic Clearance Service (ECS)- The ECS is an electronic method of transferring funds from one bank account to another. If you set up an ECS from your account, money will be deducted from your account every month, and the bank will require a cancelled cheque from you to make this withdrawal.
  • Know Your Customer (KYC)- Cancelled cheques are useful for various KYC procedures when investing in mutual funds or the stock market because they contain important information. It acts as proof that the individual has a bank account, the account holder's name and account number, and the name and branch address of the bank in which the individual holds an account.
  • Withdrawal of Employee Provident Fund (EPF)- To withdraw money from your EPF account, you must provide a cancelled cheque.  When withdrawing money from the EPF, a cancelled cheque is necessary to validate the account details of the person withdrawing.
  • Financial lending institutions frequently need a cancelled cheque from debtors to process a loan request.
  • You may be requested to present a cancelled cheque when acquiring insurance products such as an endowment plan or a money-back plan.
  • For Demat Account- A Demat account is used to store shares in electronic form by individuals, and it requires the submission of a cancelled cheque and a form for creating an account. You must submit a cancelled cheque together with other KYC documents such as identity evidence, address proof, and so on if you wish to register a Demat account.
  • When purchasing insurance, you will be required to produce a cancelled cheque to verify your bank account.
  • When joining a new organisation, sometimes your employer may ask for a cancelled cheque to very your bank account. 
  • Equal Monthly Installations (EMI)- EMI choices are available on various loans, including vehicle loans, student loans, and home loans. For completing the formalities to assign such monthly payment methods, the bank or corporation in question would require a cancelled cheque.

Also Read: All You Need To Know About Post-dated Cheques

Conclusion

A cheque that has been cancelled is a safeguard against unauthorised access to your account. A cancelled cheque has your bank account number, account holder's name, IFSC code, MICR code, and bank name. Always be sure that your signature is not affixed to a void cheque; otherwise, fraudsters may be able to duplicate it. Obtain a statement or declaration supporting the demand for a signature on the cheque leaf if someone mandates it. When cancelling a cheque, be cautious. To reduce the chances of fraud, make sure you give it to the proper individual. The reasons for needing a cancelled cheque have been discussed in this article. Therefore, we hope that this article provides sufficient information regarding what is a cancelled cheque and how to write an HDFC cancelled cheque and other necessary information. 

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FAQs

Q: Is it possible to block a cheque leaf online?

Ans:

You can stop your cheque by contacting your bank or checking into your bank’s official website.

Q: I've drawn two parallel lines across the cheque. Is it going to be cancelled?

Ans:

No, it will not be considered a cancelled cheque unless you write the term "Cancelled" on it. 

Q: What information can be gained from a cancelled cheque?

Ans:

The information on the cancelled cheque includes your bank account number, branch name and address, and MICR code.

Q: How do you cancel a cheque?

Ans:

To cancel a cheque, just strike two lines across it and write 'Cancelled' in the space between them.

Q: What are some situations in which cancelled cheques are required?

Ans:

Cancelled cheques are useful in various situations where it is required to complete formalities for a few procedures such as KYC, EMI process, ECS, when choosing an insurance policy, opening a Demat account, withdrawing PF, and opening bank accounts.

Q: Can I utilise a cancelled cheque for a specific purpose?

Ans:

A cancelled cheque serves as verification that you have an account with the specified bank. These may be necessary when applying for a loan, investing in mutual funds, establishing an ECS, purchasing insurance, and other related activities.

Q: Is it necessary for me to sign the cancelled cheque?

Ans:

No. Because the cheque that has been cancelled is only used as proof and not for a transaction, you are not required to sign it. On a cheque that has been cancelled, you should not sign or write any information such as your signature, the amount, the payee's name, or anything else.

Q: Is it possible that my bank will cancel my cheque?

Ans:

No, your bank will not be able to cancel your cheque on your behalf. It is your responsibility to cancel the cheque. If you do not have a cheque, your bank will issue you a chequebook so that you can cancel a cheque for further processing.

Q: What are the risks of cancelled cheques?

Ans:

A cancelled cheque contains information such as the account holder's name, bank name, IFSC code, and MICR that could be misused. As a result, regardless of the type of cheque, proceed with caution.

Q: Is it possible to cancel the cheque with red ink?

Ans:

When writing or cancelling a cheque, always use blue or black ink. The use of any other colour will be rejected. No other colours are accepted by banks, Non-Banking Financial Companies (NBFCs), or other financial institutions.

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