Cancelling a Cheque: What It Is and How to Do It.

In India, a check or cheque is a common and reliable method of payment. A cheque is a negotiable instrument that directs a bank to pay a specified sum from the account of the drawer or issuer to the account of the drawer or holder of the cheque. Thanks to the development of modern technology, business deals can be made online in a matter of clicks.

People who don't trust online methods or who find them inconvenient continue to use cheques at relatively high rates.

In order to cash a cheque, you need to have the following three things:

• The person who signs a check or gives instructions to a bank to pay a certain amount of money via check is called the drawer of the check.

• To whom it may concern: the drawee of this cheque, to whom the bank is hereby directed to pay the specified sum.

• The person or entity to whom the bank must make the payment is known as the "payee."

There are many varieties of cheques, such as open cheques, self-cheques, bank cheques, crossed cheques, stale cheques, and cancelled cheques.

See Also: GST Online Registration Procedures

The Meaning of a Voided Check

Simply put, the premise is as easy to grasp as the term. Any previous use of the cancelled check is null and void. Extremely helpful.

A "cancelled check" is a cheque with two parallel lines drawn across it and the word "cancelled" written in the space between them. No money can be transferred using a check with the above features. Even so, it's a vital Know Your Customer document. Let's take a look at some of the other aspects of the phenomenon now that we have established what a cancelled cheque is.

However, it **serves as proof that the individual in question does, in fact, have a bank account. Additional information includes the account holder's name and address, the account number, the bank's IFSC and MICR codes, and the bank's name and branch location.

Reversing a Cheque Payment

If you need to stop payment on a check, just cross it out twice and write "Cancelled" in the resulting gap. It is a cancelled check and you should not sign it. Simply proving that you have a bank account is all that it does. Evidence in the form of a check is sufficient if it includes the account holder's name, branch name and address, account number, and MICR code.

When Is a Cheque Cancellation Necessary?

For the following monetary dealings, it is obligatory:

• Know Your Customer Forms (KYC) Completed: Know Your Customer, or KYC for short. It alludes to the documentation requirements set forth by financial institutions to ensure that their customers are acting lawfully when transacting money. Since the cancelled check verifies your identity as a bank account holder and serves as proof of your banking credentials, it is one of the documents required when purchasing stock, mutual funds, or other investments tied to the stock market. This document is required by banks and other financial institutions to prove an individual's identity, account information, and branch location.  

• ESC, or Electronic Clearance Service, allows you to make electronic transfers of funds between accounts such as debits and credits without the need for any paper documents. This is a method whereby a business or investment firm automatically deducts a specified amount from your checking or savings account on a regular schedule (typically monthly, quarterly, semiannually, or annually). You could have set up ECS to pay your monthly electric, water, and internet bills. If you want to have the money deducted directly from your checking account by the service provider or investment firm, they may ask for a cancelled check. When the time comes, the funds will be automatically withdrawn from your account by the service provider or investment firm, who will then enter the relevant information into their ECS system.

• We frequently make credit purchases and then make installment payments to pay them off over time. Numerous loan types, such as mortgages, auto loans, student loans, etc., offer EMI variants. To finalize the paperwork associated with assigning such monthly payment options, the bank or business would require a cancelled cheque.  

• Demat Account: A Demat account is a digital holding space for stock owned by an individual. A checking account in this category is not something you can simply walk into a bank and ask for. Your signature and other identifying information as well as proof of your current address and identity will be required upon submission of the form. You must also provide a copy of your cancelled check. This, along with other relevant paperwork, will be forwarded to a stock brokerage firm. In order to set up automatic withdrawals and deposits to your Demat account, the company will use the information provided on the cheque. Your Demat account will be linked to your savings account, allowing for paperless transfers of funds between the two.  

• Withdrawals from the Employees' Provident Fund (EPF) require not only a properly filled out form but also a cancelled check if the EPF account has matured or if the early withdrawal is being requested. Your bank account will be credited directly by the Employees' Provident Fund Organization (EPFO) using the information provided on the cheque.

• The process of opening a bank account requires the presentation of a cancelled check. This could be required in the case of a checking or savings account.

• Everyone is familiar with the concept of an insurance policy and its potential applications. When purchasing insurance, whether it be health, life, or money back, you will be required to provide a cancelled check. Your savings account will be automatically debited to cover the insurance premiums. Some insurance providers request a cancelled check from policy buyers as a verification of financial responsibility.

• Loan disbursement: We frequently take out loans. You can use a loan for anything you need, whether it's for school, a wedding, a new home, or a vacation. Today, no bank or other financial institution will extend a loan in hard currency. Borrowers never have to worry about the loan money being sent anywhere else but straight into their bank account. Therefore, they will need a cancelled cheque in order to use the information to make a direct deposit into your bank account.

What are the best methods of bookkeeping for a small company?

Choices are not restricted to the ones listed here. In a wide variety of additional contexts, it is necessary

When a Check Has Been Canceled: Proper Form

Now that you know what a cancelled check is, you can write one if it will speed up the application process. Please follow the simple steps below to properly write a canceled check:

• First, tear a blank cheque off the back of the one you want to cancel. There is no place for your signature on this check.

• Step 2: Use a blue or black pen to make two parallel cross lines on the cheque. Each end must be linked by a line. Place a significant amount of space between the two lines for writing.

• Third, in capital letters, type "CANCELLED" between those two lines. Lowercase letters are acceptable.

• Point Four - Never put your signature on a voided check Your signature may be required if a financial institution or other entity makes such a request. If you are unsure whether or not you need to sign, it is best to check with a higher-ranking bank official. If this seems risky, you can ask the person who wants to sign off on your cancelled check to put their request in writing.

Remember that the check's account number, account holder's name, the IFSC or MICR code, and the name and location of the branch where the account is held are not included in the parallel lines you draw across the check. etc

Many types of fraud can be committed using information obtained from a cancelled check.

• Instance of the account number
• Signer's full name for the account
• IFSC Code
• MICR Code
• Type of bank
• Location of the bank and its name

Several types of fraud could be committed with this data. Your signature on it makes you vulnerable to fraud because a criminal can easily forge a copy and use it fraudulently. Because of this, signing a cancelled check can be risky business. You shouldn't relax if someone asks for your signature because it doesn't actually require one. For this reason, whenever you're asked to sign a cancelled check, you have the option of first requesting a statement or declaration from your bank.

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Formal Example of a Voided Check

It looks and functions just like a regular cheque. It consists of the following parts:

• Brand of the bank
• Branches' Official Names
• Signer's full name for the account
• Number of account
• IFSC code
• MICR code

Replacing the Image on a Voided Check

Nonetheless, the distinction is clear if you take a look at the cancelled check scan. There will also be the word "cancelled" printed on the cheque between two parallel lines. Find a cancelled check example or template down below.

The Distinctive Features of Cancelled Cheques and Stop Payments

DISCONTINUE Funding REVOKED Check For STOP Payments, the check will be purely transactional. The cheque is invalid as a form of payment in this situation. Where it says "CANCELLED," there is no such word. There's a big red "CANCELLED" sign. It's used when there aren't enough funds in an account to cover a cheque, when a cheque has been lost, or when the recipient requests that payment be suspended for any other reason. Bank account details such as name, account number, bank name, IFSC code, MICR code, and branch name are provided. A "stop payment" order must be issued to the bank in order to prevent the bank from processing the check. Since this order does not have the necessary transactional authority, the bank will never use it to make a payment, so it is unnecessary in this case. Cancelling a cheque payment may incur a small fee from your bank. Bank fees are nil

In sum, a cancelled check is a precaution you can take to prevent unauthorized withdrawals from your account. The account number, account holder's name, IFSC code, MICR code, and bank's name are all kept in there. Never put your signature on a cancelled check because identity thieves could use it to reissue a fake check in your name.  

FAQs

Q1 When should a check be canceled?

Two lines are crossed, and the word "CANCELLED" is written in the space between them.

Q2 When would you need to use a voided check?

They come in handy when completing procedures like Know Your Customer (KYC), Equivalent Monthly Installment (EMI), Electronic Clearing Service (ECS), opening a bank account, selecting an insurance policy when opening a Demat account when withdrawing PF, etc.  

Q3 Do red pens work as check-cancelling tools?

If you need to cancel a check or write one, do so only in blue or black ink. Not acceptable in any other hue.

Q4 What can we learn from a previously cashed check?

Your bank account number, branch name and location, and MICR code may be listed.

Q5 If I need to cancel a cheque, could there be any consequences?

Money in the account cannot be withdrawn using this.

Q6 Do I need to put my signature on the voided check?

Do not sign it because it could be used inappropriately. In no circumstance is the presentation of a cancelled check that has been signed necessary.