What happens if cash or notes are seized by police or income tax?

Police seizure — the legal framework

Police seizure of currency notes during an investigation or at a checkpoint is governed by the Bharatiya Nagarik Suraksha Sanhita 2023 (BNSS), which replaced the Code of Criminal Procedure (CrPC). Under BNSS Section 106 (equivalent to CrPC Section 102), a police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence.

The seizing officer must prepare a panchnama (seizure memo) — a document listing the items seized, the circumstances of seizure, and the identity of witnesses present. The person from whom the items are seized is entitled to a copy of the panchnama. The panchnama is critical documentation for any subsequent legal proceedings — it establishes what was taken, when, and under what circumstances.

Currency notes seized by police during a routine checkpoint — for example, a collector travelling to a fair who is stopped at an election surveillance checkpoint, as happened to Girish Malani in 2016 — must be released if no offence is established. If notes are retained for investigation, the collector has the right to apply to the court before which any related proceedings are pending for the return of the notes, or to the High Court by writ petition if no proceedings are pending.

Income Tax search and seizure — Section 132

Section 132 of the Income Tax Act empowers authorised IT officers to conduct searches and seizures when they have reason to believe that a person has undisclosed income or assets. During an IT search, all assets including currency notes may be seized if the officer believes they represent undisclosed income.

The IT officer must prepare a seizure memo listing all assets taken. The person subject to the search is entitled to a copy. Seized currency is held by the IT department pending assessment of the undisclosed income claim. The person can claim the release of notes — including numismatic notes — by demonstrating that the source is explained income, purchased through documented sources.

The Malani and Potdar cases illustrate what happens when IT-seized notes are not returned before the exchange deadline. In Ramesh Potdar v. Union of India (Bombay HC, 2025), ₹20 lakh seized by IT in 2016 was returned after the exchange deadline. The court directed RBI to accept the notes. Documentation of the seizure — the IT department's seizure memo and return acknowledgement — was the evidence that proved the citizen was not at fault for missing the deadline.

What to do immediately when notes are seized

Step one: do not resist or argue at the point of seizure. Resistance escalates the situation and gives officers additional grounds for action. Cooperate with the seizure process while asserting your right to a panchnama.

Step two: ensure you receive a copy of the panchnama before the officer leaves. Verify that the panchnama accurately lists every note taken — denomination, quantity, and in the case of numismatic notes, any specific identifying characteristics. If the panchnama is inaccurate, note the discrepancy in writing.

Step three: contact a lawyer immediately. Seized property can be returned through the court process, but delay in engaging legal assistance extends the period of deprivation.

Step four: preserve all documentation — the panchnama, any receipts for the notes' acquisition, the collection catalogue, and evidence of the journey or activity that led to the seizure.

Laws & authorities referenced in this chapter

BNSS 2023 — §106 (police power to seize property — seizure memo/panchnama required)

Income Tax Act 1961 — §132 (search and seizure by IT officers; seizure memo; release of assets after assessment)

Ramesh Bapurao Potdar v. Union of India — Bombay HC, 2025 — IT seizure + deadline non-compliance + judicial remedy

Girish Rameshchandra Malani v. UoI & RBI — Nagpur Bench, Bombay HC, 2026 — police seizure + deadline non-compliance + judicial remedy