Have you ever been asked to submit a cancelled cheque while availing a few essential services such as credit cards, loans, products on EMIs and more? If yes, then you may have an idea about why they are needed.
If you are new this concept and don’t know why you need to submit a cancelled cheque, then here is a post to know more!
What is a cancelled cheque?
A cancelled cheque is a cancelled cheque leaf, on which the word ‘cancelled’ is written between two parallel lines that get drawn diagonally.
Once a cheque has cancelled written over it, it bears no monetary value whatsoever. While cancelling on a cheque, you don’t need to write anything else other than the word ‘cancelled.’
No one can withdraw any amount from that account whose cheque you have been asked to submit. The idea of asking for a cancelled cheque is to certify that you are the actual owner of the bank account and is needed for KYC purposes generally.
What are the reasons to submit cancelled cheque?
Other than KYC purposes, a cancelled cheque has many more purposes such as:
- KYC – The foremost point of a cancelled cheque is in the Know Your Customer (KYC) processes and certification. KYC is needed when you want to buy anything on EMI, investing in stocks and mutual funds and beyond.
- Opening of bank accounts – If you are looking to open a bank account in a specific bank, then you will need to submit a cancelled cheque. It is to verify your financial credentials so that you are able to open your bank account successfully.
- EMIs – All banks and other lenders ask their customers to provide them with cancelled cheques to go ahead with the process of calculation of EMIs. When you apply for loans such as personal loans, home loans and more, then this process has to be followed.
- ECS – Electronic Clearance Service (ECS) needs the cancelled cheque submission to help in the deduction of a certain amount from your bank account. It is done when you make periodic payments to any service provider.
- Insurance – Many people in India enrol for multiple types of insurance policies to avoid paying money from their own pockets related to many life events. To become eligible in doing that, you need to submit cancelled cheques to verify your financial credentials.
- For the opening of the Demat account – Many people in India want to try their luck in shares and stocks to earn money. A lot of seasoned players even get the benefit of investing in them and getting a huge ROI. However, to complete the procedure of opening a Demat account in India, you will need to submit cancelled cheques. Yes, while doing that, you will need to submit a cancelled cheque to the concerned stockbroker. You will need to submit a cancelled cheque, along with other documents such as account opening form, ID proofs, among others.
You are now aware of the key uses and reasons why you need to furnish a cancelled cheque. The next time someone asks for it, you will have an idea why it is asked. Overall, it works as proof of you holding a valid bank account in India. It is also needed so that there are no human errors on you providing your bank details for availing a service.
Overall, right from opening a bank account to buying a product on easy EMIs to starting a SIP in a mutual fund or setting up an ECS mandate, a cancelled cheque is a must.
While issuing anyone a cancelled cheque, you can simply write the word ‘cancelled’ across the cheque and draw two parallel lines diagonally. You should also ensure not to sign the cancelled cheque, and there is no need to strike any other printed bank details.