There may have been many occasions when you may have been asked to submit a cancelled cheque. But do you have any idea what it’s used and why it is asked? If not, then you don’t have to worry as this short post will help you know it all. Read on!
What is a cancelled cheque?
A cancelled cheque is a cheque that has been cancelled by writing the word ‘cancelled’ on it by drawing two parallel lines. Once a cheque is cancelled, it has no monetary value, which means that it can’t be used for sending or receiving money. You also don’t need to sign it while issuing someone a cancelled cheque.
What is the purpose of a cancelled cheque?
The basic purpose of asking for a cancelled cheque is that it is asked for compliance needs such as gathering Know Your Customer (KYC) information for offering services. It is asked by service providers when you apply for bank accounts, credit and debit cards, ECS set up and much more.
Where is a cancelled cheque needed?
Other than KYC purposes, you may be asked to submit a cancelled cheque for many more aspects. Have a look:
1. Know Your Customer (KYC)
When you are looking to avail services such as buying products on EMIs, credit cards and a lot more, service providers may ask you to submit a cancelled cheque. It may also be used for mutual funds and stock investment KYC compliance.
2. Electronic Clearance Service (ECS)
Electronic Clearance Service (ECS) is a service that is required for deducting a specific amount from your bank account for periodic payments such as mutual funds and more. To facilitate this, you may be asked to submit a cancelled cheque or your account should be ECS mandate enabled. It is because a cancelled cheque has your entire bank details like your name, your account number, bank branch address, IFSC Code and MICR Code.
3. Equated Monthly Installments (EMIs)
Banks and other financial service providers may ask for a cancelled cheque while processing your requests for multiple loans like personal loan, home loan and more. Even when you buy a product on EMI in a store and want to enjoy the facility of the consumer durable loan, then you may have to submit a cancelled cheque for it.
4. Insurance policies
Even when you are looking to enrol for insurance policies such as endowment and others, then you may have to submit a cancelled cheque for smooth processing.
5. For opening a bank account
Many banks and other similar service providers may want to verify your financial credibility before letting you open a bank account in India. Hence, to facilitate the processing of the same, you may have to submit a cancelled cheque.
6. For the issue of a credit card
A lot of people in India apply for a credit card to manage their small and other immediate financial needs and for buying products on EMIs. Many even do that to keep their CIBIL Score up by paying for bills on time so that they can avail larger home loans. But to do that, you need to complete some formalities by submitting a few of your basic documents related to your personal, personal and financial portfolio. A cancelled cheque is also needed to facilitate the smooth processing of the credit card application.
7. For EPF withdrawal
When you apply for EPF withdrawal, your company may want a cancelled cheque to ensure that the PF amount gets deposited in your account and not anyone else. The commonest of the instances where a cancelled cheque is needed in India is now discussed. Now if someone asks for it, then you may know for what purposes it is being asked, and you will have no confusion while issuing it.