Chapter III — Central Banking Functions

Section 26: Legal tender character of notes

Reviewed by CA Nikhil Gupta · Last reviewed 18 September 2026

Section 26 gives every bank note legal-tender status for payment or on account for the amount expressed on it, subject to the Act, and permits the Central Government on RBI Board recommendation to declare that a specified series/denomination will cease to be legal tender from a notified date, subject to stated exceptions.

Operative provisionOfficial sources mappedProvision-specific decode

Finin2min - Section 26 in 2 minutes

Legal effectSection 26 gives every bank note legal-tender status for payment or on account for the amount expressed on it, subject to the Act, and permits the Central Government on RBI Board recommendation to declare that a specified series/denomination will cease to be legal tender from a notified date, subject to stated exceptions.

Operative ruleThe first limb establishes legal tender; the notification limb is the legal mechanism for withdrawing legal-tender character of specified notes.

Connected lawDo not confuse legal-tender status with a bank's operational exchange/deposit window, which may be governed by separate notifications, schemes or RBI instructions.

File evidenceFor any currency-withdrawal event, retain the Gazette notification, effective date, covered series/denomination and permitted exceptions.

Statutory structure and clause / subsection decode

This map separates the operative limbs of this provision so thresholds, powers, conditions and exceptions are not collapsed into a single summary.

Rule 1

The first limb establishes legal tender

Rule 2

the notification limb is the legal mechanism for withdrawing legal-tender character of specified notes.

Connected rule

Do not confuse legal-tender status with a bank's operational exchange/deposit window, which may be governed by separate notifications, schemes or RBI instructions.

Worked practical example

Facts. A merchant's refusal of a note is a different question from whether the note remains legal tender under Section 26; contractual, operational and statutory issues should be separated.

Compliance points and common mistakes

Do not decide the issue from the heading alone. Map the facts to the operative words of Section 26 and to each relevant subsection, clause, proviso or explanation shown above.
Keep the statutory question separate from the operational overlay. Do not confuse legal-tender status with a bank's operational exchange/deposit window, which may be governed by separate notifications, schemes or RBI instructions.
Do not convert an exception, exemption or discretionary RBI/Government power into an automatic entitlement. Record the authority, conditions and effective date.
Where the provision is historical, omitted or repealed, state that status prominently and do not present it as a current compliance obligation.

Connected provisions and instruments

Section 26 has no universal instrument dependency in this package. Add an RBI circular or direction only when its subject, entity and effective date cover the issue being analysed.

Questions and answers

What is the purpose of Section 26?

Legal tender character of notes: Section 26 gives every bank note legal-tender status for payment or on account for the amount expressed on it, subject to the Act, and permits the Central Government on RBI Board recommendation to declare that a specified series/denomination will cease to be legal tender from a notified date, subject to stated exceptions.

Which statutory limb should be checked first?

Rule 1 - The first limb establishes legal tender

What is the next legal boundary?

Rule 2 - the notification limb is the legal mechanism for withdrawing legal-tender character of specified notes.

What record should support the conclusion?

Section 26 file evidence: For any currency-withdrawal event, retain the Gazette notification, effective date, covered series/denomination and permitted exceptions.

Primary sources

Source control for Section 26: use the official consolidated RBI Act for the statutory text and footnotes, then separately reconcile any post-Finance Act 2022 amendment, commencement notification or RBI instrument relevant to the event date.