Cheque Management & Dishonour Rules in India: BRS Guide
Cheque Management & Dishonour Rules in India: BRS Guide
Track physical cheques, manage post-dated cheques (PDC), handle Section 138 dishonour rules, and automate BRS clearing in Tally.
Who is this for: Bank Reconciliation
Despite the rise of digital transfers like NEFT and UPI, physical cheques remain a common payment tool in B2B corporate trade. However, because cheque payments involve a delay between printing the slip and actual bank clearance, they present distinct accounting challenges.
Maintaining a structured cheque register is essential to track outstanding receipts, manage post-dated cheques, and handle dishonour cases u/s 138 of the NI Act.
1. Cheque Lifecycle and BRS Tracking
reconciling cheques requires tracking their status transition across their lifecycle:
| Cheque Status | Accounting Record | BRS Treatment |
|---|---|---|
| Issued (Uncleared) | Payment recorded in books; vendor credited | Listed as outstanding payment (unpresented) |
| Cleared | Reconciled with bank statement value | Marked with clearing date; balances match |
| Stale (Over 3 Months) | Voucher is reversed or written back | Removed from BRS list; credited to income/liability |
| Dishonoured (Bounced) | Reversal entry posted; vendor re-debited | Flagged in reconciliation; penalty charges booked |
2. The Positive Pay System (PPS) u/s RBI Circulars
To check forgery and prevent cheque alteration frauds, the RBI introduced the **Positive Pay System (PPS)**. Under this rule, customers issuing cheques of values exceeding **₹50,000** (optional) and **₹5,00,000** (mandatory u/s major banking guidelines) must submit cheque details to the drawee bank.
The details to be shared include cheque number, date, payee name, and exact amount. When the physical cheque is presented for clearing via the CTS (Cheque Truncation System), the bank compares the slip with the positive pay details, blocking clearance if mismatches are identified.
3. Cheque Dishonour Under Section 138 of the NI Act
Under Section 138 of the Negotiable Instruments Act, 1881, cheque dishonour due to insufficient funds is a criminal offense in India. The recipient must issue a formal demand notice to the drawer within 30 days of receiving the return memo from the bank. If the drawer fails to make payment within 15 days of receiving the notice, the recipient can file a complaint in court.
4. Case Study: Recording a Cheque Bounce
A business receives a customer cheque of **₹1,00,000** on April 5, 2026. The cheque is deposited but bounces due to insufficient funds. The bank returns the cheque on April 10 along with a return memo and levies a penalty of **₹250**.
The corresponding journal entries required to record this bounce sequence are:
Entry 1: Initial Receipt (April 5, 2026) Debit: Bank Account ₹1,00,000 Credit: Customer Ledger ₹1,00,000 Entry 2: Cheque Bounce Reversal (April 10, 2026) Debit: Customer Ledger ₹1,00,000 Debit: Bank Charges Ledger (Penalty) ₹250 Credit: Bank Account ₹1,00,250
5. Auditing Uncleared and Stale Cheques u/s Year-End BRS
Statutory auditors pay close attention to outstanding cheques that remain uncleared for months. If an issued cheque is not cleared within 3 months, it must be classified as a stale cheque.
The auditor checks that stale cheques are reversed in the ledger, restoring the creditor liability or writing the value back to income. This prevents window dressing—where companies record large payments on March 31 to lower bank balances but do not present the cheques for weeks.
6. Configuring Cheque Registers in Tally Prime
To manage cheque registers natively in Tally:
Tally Cheque Printing Setup:
Go to **Gateway of Tally > Alter > Ledger > Select Bank**. Set **Set/Alter Cheque Books** to **Yes**.
Enter the starting and ending cheque numbers. Tally will track issued, cleared, and cancelled leaf numbers automatically, generating complete cheque register reports.
Chartered Accountant & Accounting Automation Specialist