A cancelled cheque is a standard cheque that has been marked with two parallel lines and the word "CANCELLED" written across it, rendering it unusable for financial transactions such as withdrawals or deposits. However, it serves a crucial role in verifying bank account details for various financial and administrative processes.
Uses of Cancelled Cheques
Cancelled cheques are primarily used to verify bank account details. They provide essential information such as the account holder's name, account number, bank name, and branch details. This information is vital for various financial procedures, including:
KYC (Know Your Customer) Verification: Cancelled cheques are often required as part of KYC processes when opening new bank accounts, investing in mutual funds, or setting up Demat accounts.
Setting up Recurring Payments: They are used to set up automatic payments like EMIs for loans, insurance premiums, and utility bills through ECS (Electronic Clearing Service) or auto-debit instructions.
Salary and Reimbursements: Employers often request cancelled cheques to verify bank account details for salary payments and reimbursements, ensuring accurate and timely deposits.
Loan Processing: Financial institutions use cancelled cheques to verify the borrower's bank account details for setting up EMI auto-debit instructions.
Government Schemes: Government schemes such as PM-Kisan, LPG subsidy, and rooftop solar incentives require a cancelled cheque to link the applicant’s bank account for Direct Benefit Transfer (DBT).
How to Prepare a Cancelled Cheque
Creating a cancelled cheque is a straightforward process:
Select a Cheque Leaf: Take a blank cheque leaf from your cheque book.
Draw Two Parallel Lines: Using a pen, draw two parallel lines across the cheque leaf from corner to corner.
Write "CANCELLED": Between the parallel lines, write the word "CANCELLED" in capital letters.
Do Not Sign: It is crucial not to sign the cheque, as its purpose is solely for verification.
Cancelled Cheques in the Context of Exports from India
While cancelled cheques are not directly required for the export process itself, they can be indirectly relevant in certain situations related to export activities.
GST Refunds for Service Exporters: Service exporters in India may need to provide a cancelled cheque when applying for GST refunds. This is because the refund process for service exporters is more complex than for goods exporters, and the cancelled cheque helps verify the bank account details where the refund will be credited. The required documents for claiming an offline refund include a cancelled cheque.
Verification for Export-Related Benefits: In some cases, when applying for various export-related benefits or schemes, such as those offered by the Directorate General of Foreign Trade (DGFT), a cancelled cheque might be requested to verify the exporter's bank account details. For example, the documents required for the Letter of Undertaking (LUT) include a cancelled cheque.
Risks and Precautions
While cancelled cheques are useful, they also carry certain risks:
Fraudulent Activities: The cancelled cheque contains essential banking information, such as the account number and MICR code. If it falls into the wrong hands, there’s a risk of fraudulent activities, including unauthorized withdrawals or identity theft.
Unauthorized Transactions: If someone gains access to the cancelled cheque, they may use the information to initiate unauthorized transactions, including electronic fund transfers or setting up automatic payments without the account holder’s consent.
To mitigate these risks, it is important to:
Share only with trusted entities: Only provide cancelled cheques to trusted and authorized entities for legitimate purposes.
Securely store the original: Keep the original cancelled cheque in a secure place.
Use dark, permanent ink: Use a waterproof pen with black or blue ink to cancel the cheque.
Monitor bank account activity: Check bank statements and transaction alerts regularly.
Destroy unused copies securely: Shred any extra photocopies or delete digital files from devices.
Conclusion
While a cancelled cheque is not a direct requirement for the general export process, it can be a necessary document in specific scenarios related to export activities, such as claiming GST refunds for service exporters or verifying bank details for certain export-related schemes. It is essential to handle cancelled cheques with care and follow the recommended precautions to prevent misuse and protect sensitive financial information.