How to Write a Cancelled Cheque: A Complete Guide

In the world of banking, there are certain documents that hold special significance despite not being used in the conventional way. One such document is a cancelled cheque. While a cancelled cheque cannot be encashed, it plays a crucial role in various financial and banking transactions. Whether you're setting up an Electronic Clearing Service (ECS) mandate, processing salary payments, or filing income tax returns, a cancelled cheque is often required.

In this blog, we'll walk you through the process of how to write a cancelled cheque, and also explain its various uses.

What is a Cancelled Cheque?

A cancelled cheque is simply a cheque that has been rendered void by the account holder. It is marked as 'CANCELLED' across its face (cheque leaf) to prevent it from being encashed. Even though the cheque is no longer valid for monetary transactions, it still retains vital information such as the account holder’s name, account number, and MICR code, which are used for identification purposes in financial transactions.

How to Write a Cancelled Cheque: A Step-by-Step Guide

Writing a cancelled cheque is simple and requires only a few key steps. Follow this easy-to-understand process:

1. Choose the Right Cheque Leaf

Select a cheque leaf from your cheque book. It's advisable to use the first unused cheque in the order, but any cheque that hasn’t been used for a transaction will work.

2. Draw Two Horizontal Lines

Using a pen with indelible ink, draw two bold horizontal lines across the cheque. These lines should stretch from one end of the cheque to the other and are crucial to indicate that the cheque is cancelled.

3. Write ‘CANCELLED’ Clearly

In the middle of the cheque, between the two horizontal lines, write the word ‘CANCELLED’ in bold and legible letters (should be all caps). This should be done in such a way that it clearly crosses over the cheque's surface, ensuring that no one can easily alter or misuse the cheque.

4. Add Extra Precautionary Measures (Optional)

Though optional, you may consider taking extra security measures to ensure that the cheque remains invalid. Some individuals use a ‘VOID’ stamp or write ‘For Electronic Clearing Only’ under the cancellation marking.

5. Sign the Cheque

Finally, sign the cheque in the usual signature space provided at the bottom of the cheque. This confirms that the cancellation was authorised by you, the account holder.

Why Do You Need to Write a Cancelled Cheque?

1. Account Verification

Banks use it to verify the authenticity of your bank account details, especially when you are opening a new account or applying for loans or financial services.

2. ECS Mandates

If you're setting up an automatic payment for utilities or loans, a cancelled cheque is needed to link your bank account for Electronic Clearing Services (ECS).

3. Tax Refunds

When filing income tax returns, a cancelled cheque may be requested to ensure accurate processing of your refund.

4. Salary Payments

Employers often ask for a cancelled cheque to credit your salary directly into your account.

5. KYC Compliance

Financial institutions request it as part of the Know Your Customer (KYC) process to authenticate your account details.

Common Uses of a Cancelled Cheque

While a cancelled cheque may not hold monetary value, its role in various financial processes is significant. Here are some common uses:

1. Bank Account Verification

Financial institutions request a cancelled cheque to verify your bank account details, especially during processes like loan applications or opening a new account.

2. ECS Transactions

For setting up automatic payments like utility bills, loan repayments, or mutual fund investments, a cancelled cheque is required to authorize the transfer of funds through ECS.

3. Tax Filing

A cancelled cheque is essential when filing income tax returns, as it serves as proof of your bank account details for refund purposes.

4. Direct Debit Authorisation

Many services, like subscription renewals or recurring payments, require a cancelled cheque to set up automatic payments from your bank account.

5. Salary Processing

Employers may ask for a cancelled cheque to ensure that your salary is deposited into the correct bank account.

6. KYC Compliance

In accordance with regulatory requirements, financial institutions often require a cancelled cheque as part of the Know Your Customer (KYC) process to verify your bank details.

7. Refund Processing

A cancelled cheque is often requested by companies or agencies issuing refunds (e.g., insurance claims or security deposits) to ensure the refund is credited to the correct account.

8. Loan Application

While applying for a loan from a bank branch, the bank may ask for cancelled cheque as a mandatory document.