Image Source:

This article has been written by Nimisha Dublish of the Vivekananda Institute of Professional Studies, GGSIPU, New Delhi. The article talks about all possible aspects of legal tender in India. It also discusses the legal status of cryptocurrencies in India. It is followed by the scenario of legal tender in some other countries as well. 

This article has been published by Sneha Mahawar.


We remember the last time everyone heard and understood the meaning of legal tender was when demonetisation happened back in 2016. Everyone ran here and there to replace the paper notes that were no longer the means of transaction. The old notes were to be replaced with the new official legal tender. Those with black money were highly confused about what to do with the huge denominations of notes, which were no longer acceptable as legal tender in India. In layman’s terms, legal tender is a sort of mechanism acknowledged by law as a means to hold private or public debt, meet fiscal responsibility (tax payment), abiding contracts, and payment of fines/damages. Most countries use their national currency as legal tender. The Reserve Bank of India is the organisation commissioned to create and issue legal tender to the public at large. Coins and notes come under the legal tender of India. The form of money that is accepted and required for the payment of any kind of monetary debt is known as legal tender. 

Download Now

Different jurisdictions have their own specific legal tender, and legal tender is specifically a mode of payment which helps pay off debts. In a normal sense, cash in the form of coins and banknotes is widely accepted as legal tender in most countries, whereas credit cards, cheques, or any other form of similar non-cash means are not accepted for the same. A growing hype about cryptocurrencies has also been seen in public. However, cryptocurrencies are not commonly accepted as they are not legally recognised by many countries around the globe. 

Breakdown of the term “Legal Tender”

The coins and notes that are circulated in the market are authentic legal tender issued by the Reserve Bank of India (RBI). The creditors and those to whom the payment is to be made have to accept the same as a valid source of payment towards the debt. Some may accept payment through cards and cheques and some may not. However, they remain the legal tender of India. They are the substitutes and the holder can go and receive the payment for the debt availed. The term ‘legal tender’ means an offer. It is derived from the Middle French word ‘tendre’. The Latin meaning of ‘tendere’ is to stretch out, which means to extend (to hold outwards). 

What is legal tender and why is it important

There are many modes of payment that a person uses in their daily life. If we take a deep look into history, then we can trace that humans once used salt and spices as a mode of exchange, i.e., as currency. But if we see it now, legal tender is the money that is recognised by the law of the relevant land. The law must accept it as a valid form of payment. The Reserve Bank of India Act, 1934 gives the Reserve Bank of India/ Central bank the sole right to issue banknotes/currency of the nation. The said Act states that the banknote as issued by the Central Bank shall be accepted as legal tender at any place in India for the payment of the amount as expressed therein. 

Many people are not aware that the 50 paisa coin is accepted as legal tender in India. Therefore, it can be derived that 50 paisa coins, which is the lowest denomination of money, can be used for paying dues up to Rs. 10. Hence, these are limited in character, whereas the currency notes can be used for making payment of an unlimited amount, which makes them unlimited legal tender. The economic functions of money are performed by legal tender in cases like monetary policymaking and currency manipulation. There are some countries around the globe that do not issue their own currency and use the US dollar for the same purposes as legal tender.

The cancellation of a legal tender holds an important status in society as it derives all its value from recognition by the government. If the central authorities don’t recognise some money as legal tender, then it loses its value and reduces it to just a piece of metal or paper. The same may not apply to gold. Even if the government declares gold to be of no value or nil value, people might continue to trade it. This is because the value of gold is not passed on to us by government dictatorship but by ancient traditions. This is not true for a piece of paper to survive in the market without having any backing from legal norms or the government. If the currency note is presented to a person, then it means that the Reserve Bank of India or the Central Government promises to ‘pay the bearer’ an equivalent sum of money/amount/goods/services as printed on the banknote. 

Why should a person be concerned about the status of currency as a legal tender

If one day a person wakes up and comes to know that all the money he has in liquid form is no longer accepted as legal tender, then it will lead to huge financial jolts in his finances, as happened at the time of demonetisation back in 2016. One of the biggest demonetisation moves can be traced back to when the European Union was born in 1999 and the commonly accepted currency was demonetised. The act was done for the new national currency to be adopted, i.e., the Euro from 2002 onwards. Paper currency notes were also replaced with polymer notes in Australia in the 1990s. Even India, back in 1946 and 1978, withdrew Rs. 10,000 notes and demonetised them. The withdrawal of the high denomination legal tender is making the economies shift to cashless and electronic forms. A cashless society can be described as an economy wherein financial transactions are no longer conducted by money or in the physical form of cash like coins and banknotes. The transactions are carried out in the digital form. In historical times, cashless economies existed but in the form of barter systems or some other means of exchange. In the barter system, goods were given in place of certain other goods holding a similar value. For example, people used to sell 1 kg of wheat in place of 1 kg of rice or 1 kg of cereals in place of half a kg of something holding a similar value, like kidney beans. 

Types of legal tender money

Unlimited legal tender money

Any amount of debt can be paid in this form of money. No person can refuse to accept this mode of payment; otherwise, they may face legal consequences. In India, the paper notes or bank notes issued by the Reserve Bank of India are known as unlimited legal tender.

Limited legal tender money

Debt up to a certain amount can only be paid off using this type of money. If someone makes a payment of more than the prescribed limit, then it is up to the receiver to accept it or deny it. If the receiver denies the payment, then no legal action can be taken against the person. Coins are the only form of legal tender that exists in the form of limited legal tender money. 

Economic functions of legal tender money

There are several purposes served by legal tender in the economic sphere. It is used as a medium of indirect exchange, a unit of account, a store of value, and a standard of deferred payment to fulfil the functions of money in the economy. The usefulness of money is enhanced by legal tender as it helps to reduce transaction costs. Legal tender results in reducing the rigidity in the money supply, and a single currency can eliminate the associated translation costs with the use of multiple competing currencies in a nation. Monetary policies become possible because of the application of legal tender and its laws in a nation. Legal tender allows the manipulation, debasement, and devaluation of the currency by its issuer in order to obtain seigniorage. Seigniorage means the profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.

Importance of legal tender money in India

  1. The legal tender is used by the market players as a way to carry out indirect exchange, as a unit of account, as a store of value, as a mode of deferred payment, standard to perform the functions of money in the economy. 
  2. There is increased flexibility in the chain of money supply if a single currency is used as legal tender and eliminates the transaction costs linked to the usage of multiple competing currencies.
  3. Legal tender makes the making of monetary policy possible. 
  4. It facilitates the issuance of fiduciary media by the banking system to meet trade needs. 

Limitations of legal tender money in India

If there is any loss in the status of the currency’s legal tender, the personal finances of a citizen are hugely affected. For a short-term period, it also tends to disrupt the smooth functioning of the day-to-day business activities of a nation. There exists a full-fledged war around the globe on tax evasion, which makes the case for countries to withdraw high-value notes from a legal tender. All this leads to a cashless and electronic economy in terms of payments and transactions. 

Legal norms governing legal tender in India

The Indian currency is represented as Indian Rupees (INR), where one rupee comprises 100 paise. The legal tender of India is symbolically presented as ‘₹’. This symbol represents the Devanagari letter and the Latin capital letter ‘R’.

Legal tender under the Coinage Act, 2011

Section 6 of the Coinage Act, 2011 covers the issuance of coins by the Government of India. The provisions are as follows-

  1. The legal tender (coins) used for the payment and means of a transaction should not be defaced or of less weight. The weight of the coin shall remain within the prescribed limit.
  2. The coins not below Re 1 should be legal tender for all sums up to Rs. 1000. 
  3. The coin holding the value of 50 paise i.e. half a rupee shall not be used to pay the sums exceeding Rs. 10. 
  4. However, if a person wishes to accept a sum of money as prescribed above, then he/she is free to do so and it is not prohibited by law. But nobody can be forced to accept money beyond the prescribed limits. 

Legal tender under the RBI Act, 1934

  • As per the norms of Section 22 of the RBI Act, the Reserve Bank of India has the sole right to issue banknotes in India. 
  • Section 25 of the Act describes the design, form, and material used for banknotes, which shall be approved by the Central Government after considering the recommendations made by the Central Board of RBI. As far as the coins are concerned, they are only distributed by the RBI when they are supplied by the Government of India. As per the Coinage Act, 2011, the Government of India is solely responsible for the designing and minting of coins in various denominations.
  • As per the provisions of Section 24 of the Reserve Bank of India Act, 1934, the banknotes shall be of the denominational value of Rs. 2, Rs. 5, Rs. 10, Rs.20, Rs.50, Rs. 100, Rs. 500, Rs. 1000, and Rs. 10,000. The value shall not exceed Rs. 10,000 as per the recommendations of the central board on this behalf. 
  • Section 26(2) of the RBI Act, 1934 covers the provision for the issuance of banknotes (Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500, and Rs. 2000) by the Reserve Bank of India unless they are withdrawn from circulation and shall be accepted as legal tender all over India for the mode of payment. Re. 1 notes are also to be accepted as legal tender issued by the Indian government. The Rs. 500 and Rs. 1000 notes of the Mahatma Gandhi Series issued up to November 8th, 2016 cease to be used as legal tender with effect from midnight of November 8th, 2016. 
  • As defined in Section 33 of the Reserve Bank of India Act, 1934, all banknotes issued by the Reserve Bank of India are backed by assets like gold, foreign currency assets, and government securities. 

Whether cryptocurrencies are legal tender in India

There have always been debates and discussions around the legal status of cryptocurrencies in India. People hype around the growing era of digital currencies in the form of cryptocurrencies. The Government of India has cleared the air a bit on the topic and has talked about it in the session of Union Budget 2022-23. But moving back a bit into the procedures and chronology that happened before the presentation of the Union Budget, it began with a circular issued by the RBI. The circular restrained banks, NBFCs, and payment system providers from transacting in virtual currencies. They were also restrained from giving services to virtual currency exchanges. A writ petition was filed by several crypto exchange platforms in the Supreme Court of India. This resulted in a decision in favour of the platforms dealing with virtual currencies. The circular issued by the RBI was held unconstitutional in the case of the Internet and Mobile Association of India v. Reserve Bank of India (2020). The ban on organisations dealing with virtual currency exchanges was struck down by the Supreme Court in the present case. An amendment was made in Schedule III of the Companies Act 2013. The amendment was made on March 24th, 2021. The amendment said that all companies dealing in cryptocurrencies in the form of investments are required to disclose the amount for the new financial year. Also, the companies are required to mention the profit or loss that is involved in the transaction. The amendment made it compulsory for the companies to mention the number of holdings they have along with the details of deposits and advances they have taken from any person/authority for the purpose of trading or/and investing in cryptocurrency. 

An announcement was made by the Finance Minister of India, Nirmala Sitharaman, in the Union Budget of 2022-23 that any form of income that occurs from the transfer of habitual digital assets shall be taxed at a rate of 30 per cent. It was further added that a 1 per cent tax deduction has been proposed for all the transactions involving cryptocurrencies in them. However, the taxation of virtual digital assets doesn’t make them legal tender or a recognised legal mode of transaction. It was made clear that this doesn’t imply the legal recognition of cryptocurrencies in India. 

The Cyber Security Directions were issued on April 28th, 2022, regarding the Know Your Customer (KYC) database. The instructions read as, the virtual asset service providers, virtual asset exchange providers and custodian wallet providers are mandatorily required to maintain and save all information as a part of Know Your Customer (KYC) and a financial record shall also be maintained consisting of financial transactions for a minimum period of 5 years to ensure cyber security in the area of payments and financial markets for the citizens. This also protects their data and fundamental rights and gives them economic freedom to grow in the area of virtual assets. Maintenance of data for 5 years implies that the companies are required to exist for a minimum period of 5 years. This is proof on the part of the Government of India that they may have permitted de facto approval of cryptocurrencies and transactions in them. 

The Finance secretary, TV Somanathan, has clarified a bit more on this topic in an interview with the Press Trust of India (PTI). He said that gold and diamonds are metals that are of great value but are not recognised as legal tender in India. Just like them, private cryptocurrencies will also never be legal tender in India. Legal tender is something that is accepted by law as a means of settlement of debts, and India will not be making any crypto assets as legal tender. He also said that only the Digital Rupee issued by the Reserve Bank of India will be legal tender in India. Cryptocurrencies will never be legal tender in India. 

El Salvador is the first country that has made Bitcoin a legal tender. The Central African Republic (CAR) became the second country after El Salvador to adopt Bitcoin as their legal tender. However, India has been working on various laws that can be issued for the regulation of cryptocurrencies in India, but no solid draft has been issued yet or released publicly. 

In the winter session of Parliament before the Union Budget 2022-23, the Cryptocurrency and Regulation of Official Digital Currency Bill were listed for introduction. It was listed for regulating cryptocurrencies. The Bill came out of concern for misleading claims for the investors. The investors were lured by the tricks, and there was no certain legislation that could protect their rights and safeguard them from fraud. Currently, there are no such regulations for the use of cryptocurrencies in the nation. 

The Government of India has announced the introduction of the Digital Rupee to be issued by the RBI to keep up India’s pace with the global shift towards virtual financial instruments.

Difference between legal tender and fiat money

Legal tender is a currency that is declared legal by the government of that particular nation, whereas fiat money doesn’t hold any intrinsic value. The currency is set as the legal standard for repaying debt by first issuing it as a fiat currency and then as legal tender. Fiat money holds a benefit by giving the central bank greater control over the economy, but by doing this, the government can print more money, resulting in hyperinflation. 

Fiat money is a type of currency that is not backed by any kind of commodity like gold. It is only backed by the government. The value of fiat money is based on the relationship between demand and supply in the economy and holds value because of people’s faith in it. However, fiat money cannot be redeemed. Inflation may occur if the government prints too much fiat currency, which affects the money supply chain. 

Legal tender money is, however, different from fiat money in several aspects. It is backed by commodities like gold. It is a form of payment that is recognised by the government and is used to pay financial obligations, etc. National currencies like the US Dollar and the Indian Rupee are legal tender. Certain laws are made to ensure official legal tender gains. 

S. No.Legal TenderFiat Money
1.A currency that is declared legal by the country’s government and holds an intrinsic valueA currency that is backed by the government and doesn’t hold any intrinsic value.
2.Legal tender is set as a standard for repaying debts.The value of fiat money is maintained by the relationship between the demand and supply in the economy.
3.It is backed by assets like gold.It is not backed by any asset but by the government.

Status of legal tender in other countries


The legal tender of Australia is the Australian Dollar. Section 36(1) of the Reserve Bank Act, 1959, covers the aspect of legal tender without an amount limit. The Currency Act 1965 of Australia provides for the coin’s general circulation as legal tender and also mentions the prescribed limit of the amount. The Australian banknotes and coins are established by the Reserve Bank Act 1959 and the Currency Act 1965, but they are not necessarily required to be used in transactions and non-acceptance of legal tender in Australia is not unlawful. If the dealer mentions beforehand or specifies the mode of payment before making the contract for the supply of goods or/and services, then he is at liberty to accept whatever the buyer mentions as a mode of payment. If one refuses to accept the payment in the legal tender for an already existing debt wherein no other mode of payment is specified, then there may be legal consequences. 


Canadian dollars as issued by the Bank of Canada and coins as issued by the Royal Canadian Mint Authority are the legal tender of Canada. In Canada as well, there is a limit imposed by their Currency Act on the limited value of transactions in coins. When a person owes someone else more than one amount on the same day due to one or more obligations, the sum of all those amounts is regarded as the single amount due and payable on that day.

El Salvador

In the year 2021, El Salvador became the first ever country to accept Bitcoin as a legal tender. The Legislative Assembly of El Salvador voted in the ratio of 62-22 for the Bill to pass and then submitted it to President Nayib Bukele for the classification of cryptocurrency. 

New Zealand

The history of legal tender in New Zealand is one of the most complex ones around the globe. Banknotes started getting issued as per the provisions of British law by the Union Bank of Australia back in 1840. However, these were not automatically called a legal tender in New Zealand. The banknotes were given the status of legal tender after many ordinances were passed in 1844. Two sets of legal tenders were created. The Colonial bank of the issue became the sole issuer of the legal tender in 1847 in New Zealand. In the era between 1861 and 1874, the Bank of New Zealand, the Bank of South Wales, and the National Bank of New Zealand and the Colonial Bank of New Zealand were created by the Acts passed in Parliament and authorise these to issue bank notes backed by gold and however, these banknotes were not the legal tender money. Financial difficulties faced by the bank that could have led to failure made it necessary for the government of New Zealand to make a declaration to assist the Bank of New Zealand. In 1893, the government was allowed, as per the Bank Note Issue Act, to declare the bank’s right to issue legal tender. The Banking Amendment Act of 1914 gave the status of legal tender to the bank notes issued by the issuer and also removed the bank’s requirement to authorise them to issue bank notes that must be redeemed on demand for gold. Finally, in the year 2005, bank notes were given the status of legal tender for all sorts of payments, and coins were also legal tender for payments up to a certain limit. The old-style silver coin remained legal tender till October 2006 only. After this, new coins were introduced in August 2006, which to this day remain legal tender in New Zealand. 


Singapore and Brunei have had an agreement related to the interchangeability of currency since 1967. Both the Singapore Dollar and the Brunei Dollar come under the Currency Interchangeability Agreement. Both the currencies are exchangeable and tradable at par without adding any extra charge during any transaction in either country. This phenomenon of acceptance of one country’s currency in another country is known as ‘customary tender’. The countries have been following this customary tender trend since 1967. 

United Kingdom

Legal tender in the United Kingdom has a very limited meaning. The meaning is very technical in the settlement of debts. Legal tender in the UK is solely for providing guaranteed settlement of debts and doesn’t affect the party’s right of refusal of service in any transaction. Moving back to history, gold coins were legal tender for the payment of any amount, whereas silver coins were limited to sums of over 2 pounds and bronze for sums of over 1 shilling. Throughout the UK, coins holding values of 1 pound, 2 pounds, and 5 pounds are legal tender in unlimited amounts. As per the Coinage Act of 1971, gold sovereigns are also legal tender for any amount. 


In Norway, the Norwegian Krone (NOK) is the legal tender as per the Central Bank (Sentralbankloven) of May 24, 1985. As per the law, no one can be forced to accept more than 25 coins of each denomination. 


One can define legal tender as the currency of a nation in the form of paper money and coinage. Legal tender is considered valid for payment of any financial obligations. The nationally recognised legal tender varies from nation to nation. We have seen growth in the legal recognition of cryptocurrencies as well, but many nations are afraid of accepting or giving them the status of legal tender because of their virtual nature. Most countries keep bringing in amendments to the circulation of legal tender money in their nations. In some countries, like Singapore and Brunei, a trend of customary tender can be seen. This means that the currencies of both nations can be used in place of each other in both nations. No added tax, cost, or amount is charged on these transactions. In India, the RBI has come up with a digital rupee that is yet to be issued. It will be governed by the RBI only. Our Finance Minister, Nirmala Sitharaman, talked about this in the presentation of the Union Budget for 2022-23. 

Frequently Asked Questions (FAQs)

Can coloured, stained, or scribbled notes be counted as legal tender?

All the coloured, stained, or scribbled notes continue to be legal tender, provided they are still decipherable. They can be deposited or exchanged at any branch of the bank. 

Are coins accepted in all transactions as legal tender?

As per the instructions of the RBI, banks are required to accept coins in all transactions and exchanges as legal tender. 

What happens to the bank notes of older designs when new designs are introduced in the market? 

Both old and new design notes coexist in the market. Gradually, the circulation of old design notes decreases, whereas new design notes circulate more.

What are the legal provisions that deal with forged notes?

Sections 498A to 498E of the Indian Penal Code (1860), along with the High-Quality Counterfeit Indian Currency Offences Rules, 2013 under the Unlawful Activities (Prevention) Act (UAPA), 1967, deal with the offences against forged notes. 


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.


Please enter your comment!
Please enter your name here