Money is going digital. Most Indians already pay through UPI, but the money behind UPI is still bank money. The Reserve Bank of India has now launched its own digital currency, the e-Rupee or Central Bank Digital Currency (CBDC). At the same time, private cryptocurrencies like Bitcoin are traded widely but are not legal tender. Exams ask about the e-Rupee pilots, how a CBDC differs from crypto and UPI, and the tax and legal rules on crypto. This post explains them in simple words. It ends with 15 previous year questions.
Key Points (Quick Revision)
- The e-Rupee (e₹) is India's CBDC, issued by the RBI and treated as legal tender.
- The wholesale pilot began on 1 November 2022 and the retail pilot on 1 December 2022.
- The Finance Act, 2022 amended the RBI Act so that bank notes can be issued in digital form.
- Income from virtual digital assets (crypto) is taxed at 30%, with 1% TDS on transfers.
- Crypto exchanges and service providers came under the PMLA in March 2023.
1. What is a CBDC?
A Central Bank Digital Currency is money issued by a country's central bank in digital form. It is the same as cash, only digital:
- It is a direct liability of the RBI, like a currency note.
- It is legal tender - it must be accepted for payments.
- It does not earn interest, just like cash in your pocket.
- It can be converted to cash or bank deposits at par.
2. The e-Rupee in India
The Union Budget 2022-23 announced a digital rupee. The Finance Act, 2022 amended Section 2 of the RBI Act, 1934 so that the term "bank note" includes notes in digital form. The RBI released a concept note in October 2022.
| Type | Started | Used for |
|---|---|---|
| e₹-W (Wholesale) | 1 November 2022 | Settlement between banks, starting with trades in government securities |
| e₹-R (Retail) | 1 December 2022 | Payments by people and shops, through digital wallets offered by banks |
The retail pilot began in a few cities with a few banks and has since expanded. Users can also pay at UPI QR codes through e-Rupee wallets. The RBI has tested features like offline payments and programmability, where money can be set for a particular use.
3. e-Rupee vs UPI vs crypto
| Point | e-Rupee | UPI | Cryptocurrency |
|---|---|---|---|
| What it is | Digital cash issued by RBI | A payment system that moves bank money | Private digital tokens |
| Issued by | RBI | Not a currency; run by NPCI | No central authority |
| Legal tender | Yes | Uses bank deposits, not a separate currency | No |
| Value | Fixed - one e₹ = one rupee | Same as bank balance | Changes sharply with the market |
4. Why a CBDC?
- To reduce the cost of printing, storing and moving cash.
- To make cross-border payments faster and cheaper in future.
- To give people a safe digital form of central bank money, as an alternative to private crypto.
- To support innovation in payments while keeping the RBI's control over money.
Risks include privacy concerns and the chance that people move money out of bank deposits in a crisis. Pilots are testing how to manage these.
5. Crypto in India - the legal journey
- In April 2018, the RBI told banks not to deal with crypto businesses.
- In March 2020, the Supreme Court set aside this circular in the IAMAI case, holding it was disproportionate.
- Crypto is not banned, but it is not legal tender, and there is no full law regulating it yet.
- The RBI has repeatedly warned about risks of crypto to financial stability.
6. Tax and anti-money-laundering rules
The Finance Act, 2022 brought crypto into the tax net as Virtual Digital Assets (VDAs):
- Income from transfer of VDAs is taxed at a flat 30% (plus cess), with no deduction except the cost of purchase.
- Losses from VDAs cannot be set off against other income.
- A 1% TDS applies on transfers above set limits, from 1 July 2022.
In March 2023, VDA service providers were brought under the Prevention of Money Laundering Act. They must register with FIU-IND, verify customers and report suspicious transactions. Offshore exchanges serving Indian users are also required to register.
7. Global angle
During its G20 Presidency in 2023, India pushed for a coordinated global approach to crypto. The IMF and the Financial Stability Board prepared a joint paper on crypto policy for the G20. Many central banks around the world are also testing their own CBDCs.
8. Previous year questions
- What is India's CBDC called? – e-Rupee (e₹)
- Who issues the e-Rupee? – Reserve Bank of India
- Is the e-Rupee legal tender? – Yes
- When did the wholesale e-Rupee pilot begin? – 1 November 2022
- When did the retail e-Rupee pilot begin? – 1 December 2022
- Which Act was amended to allow digital bank notes? – RBI Act, 1934 (through the Finance Act, 2022)
- Does the e-Rupee earn interest? – No
- Which body runs UPI? – NPCI
- Is cryptocurrency legal tender in India? – No
- In which year did the Supreme Court set aside the RBI's crypto circular? – 2020
- What tax rate applies to income from virtual digital assets? – 30%
- What rate of TDS applies on VDA transfers? – 1%
- From when does TDS on VDA transfers apply? – 1 July 2022
- Under which law were crypto service providers brought in March 2023? – PMLA
- With which body must VDA service providers register? – FIU-IND
9. How to revise this topic
Start with the e-Rupee basics: RBI liability, legal tender, no interest, Budget 2022-23 announcement, RBI Act amended by the Finance Act, 2022.
Next, fix the pilot dates: wholesale 1 November 2022, retail 1 December 2022; concept note October 2022.
Then learn the comparison: e-Rupee is central bank money, UPI is a payment system by NPCI, crypto is private and not legal tender.
Finally, remember the crypto rules: RBI circular 2018, Supreme Court 2020, 30% tax and 1% TDS from 2022, PMLA and FIU-IND from March 2023.
10. Frequently Asked Questions
What is the e-Rupee?
The e-Rupee is India's Central Bank Digital Currency issued by the RBI. It is a digital form of cash, is legal tender and does not earn interest.
How is the e-Rupee different from UPI?
UPI is a payment system run by NPCI that moves money between bank accounts. The e-Rupee is itself money issued by the RBI, held in a digital wallet.
Is cryptocurrency banned in India?
No. Cryptocurrency is not banned, but it is not legal tender. Income from it is taxed, and crypto service providers must follow anti-money-laundering rules.
How is crypto taxed in India?
Since 2022, income from virtual digital assets is taxed at 30%, losses cannot be set off against other income, and 1% TDS applies on transfers above set limits.
What are e₹-W and e₹-R?
e₹-W is the wholesale e-Rupee for settlement between banks, started on 1 November 2022. e₹-R is the retail e-Rupee for people and shops, started on 1 December 2022.
For more Economy topics in simple language, see our RBI and its Functions, Black Money and Benami Law and Payments Banks and Small Finance Banks posts, or browse the Economy section. Preparing for a bank exam? Start with the RBI Grade B guide or join the 100 Hour GS Course.