How to Write a Cancelled Cheque and Why It Is Required?

A cancelled cheque serves as a simple way to share essential bank account details. It helps capture information such as the account holder’s name, account number, IFSC code, MICR number, along with the bank and branch name. Since it is clearly marked as ‘cancelled’, it cannot be used for any financial transactions. 

Key Highlights

• It is used to share and verify bank account details, not to carry out transactions.
• It is created by drawing 2 parallel lines and writing “CANCELLED” on an unused cheque.
• No signature or additional details are required on a cancelled cheque.
• Sharing it with unreliable parties can lead to data breaches or identity theft.

How to Write a Cancelled Cheque?

If you are wondering how to cancel a cheque, you need to start with an unused cheque leaf from your cheque book and mark it correctly to avoid misuse. 

Here’s how to do so: 

Step 1: Draw 2 parallel lines across the cheque leaf diagonally.

Step 2: Write ‘Cancelled’ on it.

Step 3: Do not fill in the blank details.

Step 4: Ensure the bank and account details are left intact.

What is the Purpose of a Cancelled Cheque?

A cancelled cheque can be used for multiple purposes. Some of these are discussed below:

1. Account Details Verification: You might require a cancelled cheque for an electronic fund transfer (EFT) or a loan application to help the authorities verify your bank details.
2. KYC Update and Completion: Providing a cancelled cheque for stock market, mutual fund or other investments helps you link your bank account for debit and credit transactions from the investments.
3. ECS: Electronic Clearance Service (ECS) helps you transfer funds from one bank to another. Providing a cancelled cheque enables you to validate the account details for a fund transfer.
4. EPF Withdrawal: Employee Provident Fund withdrawal mandatorily requires a cancelled cheque to ensure that the Employee Provident Fund Organisation (EPFO) transfers funds to the correct bank account.
5. EMI: You need to provide a cancelled cheque for Equated Monthly Instalment (EMI) payments of loans to ensure direct debit on the stipulated date from your bank account.
6. Automated Bill Payment: If you opt for a recurring debit option from your bank account, such as electricity bill payment, telephone bill payment or membership services, you need to provide a cancelled cheque for timely debit on due dates.
7. Demat Account: You need to provide a cancelled cheque while opening a demat account to verify your bank account details and ensure hassle-free transactions from trading.
8. Insurance Policy: When you submit a cancelled cheque for an insurance policy, it ensures the insurer processes your premium payments and settles claims on time.

What are the Risks Associated with a Cancelled Cheque?

The risks associated with a cancelled cheque include data breach, unauthorised transactions and identity theft. Here is how these risks can impact you if you are unaware:

• Data Breach: If the authorities to whom you provided a cancelled cheque lack security, your data on the cheque might be exposed to other parties.
• Identity Theft: As a cancelled cheque includes sensitive data, providing a cancelled cheque to unreliable parties can lead to identity theft and fraudulent transactions. 
• Unauthorised Online Transactions: If you are not careful about the authorities handling your cancelled cheque, it might result in fraudulent online transactions and money transfer with the details available on the cheque.  

How to Minimise Risks Associated with Cancelled Cheque?

You can minimise risks with a cancelled cheque by using dark blue or black ink to write “CANCELLED” clearly across the cheque, making it difficult to alter or erase.

Here are the other ways to minimise your risks:

• Draw the parallel lines in a way which covers all the fields where data needs to be written.
• Dispose of old cheques by destroying them to avoid unauthorised usage.
• Maintain the record of your cancelled cheque in your cheque book with reasons for future reference.

Final Word

A cancelled cheque is commonly used to share or link bank account details with trusted institutions. You can issue this only if you hold an active bank account and have a cheque leaf issued by the bank. Note that it cannot be used for any financial transactions and should always be handled with care to minimise risk.