How much value does torn / cut note carry? What are Note Refund Rules?

Received a torn / cut note from a shopkeeper / vegetable vendor and unable to use it for further transactions? Kids tore off the note in multiple pieces? Note accidently got burnt, losing a portion of the note? Found pieces of notes from old stuff? Do such notes have any value? Where can we exchange such notes? What are Note Refund Rules (NRR)?

What are Note Refund Rules (NRR)?

In terms of Section 28 read with Section 58(2) of Reserve Bank of India (RBI) Act, 1934, a person is not entitled to recover the value of any lost, stolen, mutilated or imperfect currency note / banknote from the Government of India / RBI as a right. However, RBI may prescribe the circumstances in, and the conditions and limitations subject to which, the value of such currency notes / banknotes may be refunded as a matter of grace.

Accordingly, the Note Refund Rules have been prescribed by RBI for exchange of mutilated / defective notes. 

As per Rule 2(j) of RBI (Note Refund) Rules, 2009 [as Amended by RBI (Note Refund) Amendment Rules, 2018], the powers for exchange of mutilated / defective notes free of cost, have been delegated to all branches of banks.

What is Soiled Note?

• Soiled note is –
• A note which has become dirty due to normal wear and tear.
• A two-piece note pasted together wherein both the pieces belong to the same note and form the entire note with no essential feature missing. 
• Soiled notes can be used to pay Government dues at the bank counters or can be deposited in bank accounts. 
• Soiled notes are paid in full.

What is Mutilated Note?

• Mutilated note is –
• A note wherein a portion of the note is missing 
• A note which is composed of more than 2 pieces. 
• The mutilated notes can be deposited with bank branches against a receipt, the value of which is credited to the bank account of the customer within 30 days.

How is the value of Mutilated Note ascertained?

For the notes of denominations of ₹1 to ₹20 – 

• If the area of the largest piece of the note is more than 50% of the total area of the note – full value of the note is paid.
• If the area of the largest piece of the note is equal to or less than 50% of the total area of the note – the piece does not have any value.

For the notes of denominations of ₹50 to ₹2000 – 

• If the area of the largest piece of the note is more than 80% of the total area of the note – full value of the note is paid.
• If the area of the largest piece of the note is 40% to 80% of the total area of the note – half value of the note is paid.
• If the area of the largest piece of the note is less than 40% of the total area of the note – the piece does not have any value.

Denomination of notes	Area (in cm sq.)	Minimum area (in cm sq.) required for payment of half value	Minimum area (in cm sq.) required for payment of full value
1	61.11	-	31
2	67.41	-	34
5	73.71	-	37
10	86.31	-	44
10 (New MG Series)	77.49	-	39
20	92.61	-	47
20 (New MG Series)	81.27	-	41
50	107.31	43	86
50 (New MG Series)	89.10	36	72
100	114.61	46	92
100 (New MG Series)	93.72	38	75
200	96.36	39	78
500	99.00	40	44
2000	109.56	80	88

What is Imperfect Note?

• Imperfect note means any note, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated note. 
• Imperfect notes which can withstand normal handling shall be presented at any of the bank branches for exchange. 

Which notes cannot withstand normal handling?

Notes which have turned extremely brittle or are badly burnt, charred or inseparably stuck up together and, therefore, cannot withstand normal handling, are not accepted by the bank branches for exchange. Such notes can be sent to / deposited with RBI for adjudication under Special Procedure.

Which claims are rejected?

Claim on the following notes are rejected –

1. Note on which value has already been paid.
2. Any note with slogans and message of political / religious nature written across it ceases to be legal tender.
3. Notes which are disfigured.
4. Notes which are found to be deliberately cut / torn / altered / tampered with.

References

Reserve Bank of India. (2018, December 28). 'Reserve Bank of India (Note Refund) Rules, 2009 [As amended by Reserve Bank of India (Note Refund) Amendment Rules, 2018]'. Retrieved from https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=18770

Reserve Bank of India. (2022, April 01). 'Master Circular – Facility for Exchange of Notes and Coins'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12265

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://www.rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act

Reserve Bank of India. (2025, April 01). 'Master Direction – Facility for Exchange of Notes and Coins'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12818&Mode=0#ANN1

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