The Reserve Bank of India (RBI) stated on Monday that it will start experimental launches of the Digital Rupee (eâ1) for particular use cases on November 1, 2022. The first Digital Rupee experiment will start on Tuesday and will be in the Wholesale segment (eâ1-W), according to the notification.

State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC are among the nine banks listed by the RBI.

In October of last year, RBI made a proposal to the government to extend the use of the paper rupee to include digital currency. RBI has already stated its opposition to private digital currencies.

The much-anticipated introduction of the CBDC was first officially confirmed by the Union government by Union Finance Minister Nirmala Sitharaman, who made the announcement earlier this year. The FM claims that the implementation of CBDC, which will be based on blockchain technology, will strengthen the digital economy.

What is Central Bank Digital Currency (CBDC)?

Central Bank Digital Currency (CBDC) is a digital form of legal money issued by a central bank, according to the Reserve Bank of India. Simply described, it is an electronic version of the Indian Rupee, a sort of fiat money. As a result, it can be converted into fiat money 1:1.

According to RBI, “CBDC is the legal tender issued in digital form by a central bank. It is interchangeable one-to-one with fiat currency and is the same as fiat currency. Its only distinction is in form.

CBDC will have all the benefits associated with cryptocurrencies and other electronic payment methods. A digital currency can never be physically destroyed, torn, burned, or otherwise harmed. Additionally, they are not truly lost. The lifeline of a digital form of cash will therefore be longer than that of notes.

Another key benefit of the Digital Rupee over other cryptocurrencies is that it will be regulated by a single entity, lowering the volatility risk associated with other digital currencies like Bitcoin.

Read More: Tax Benefits & Deductions for Senior Citizens

The RBI has frequently voiced worries about the use of private cryptocurrencies like Bitcoin, Ether, and others for tax evasion, money laundering, and financing terrorism. Its own CBDC debut has been seen as a way to reconcile the advantages and disadvantages of digital currency.

Certain Types Of Cash Transactions Have Serious Consequences.

1. Taking or Accepting Certain Loans, Deposits

No person is permitted to accept Rs. 20,000 or more in cash

a) For any loan or deposit or

b) Any amount related to the transfer of any immovable property (even if the transfer does not occur).
If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs. 20,000/- will apply to the tremendous amount plus any subsequent receipt in cash.

The exceptions to this provision include the following:-
Sums of this nature accepted from

(a) Government;

(b) Any banking company, post office savings bank, or co-operative bank;

(c) Any corporation established by a central, state, or provincial Act;

(d) Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(e) Such other institution, association body, or class of institutions, associations, or bodies which the Central Government may specify by notification in the Official Gazette.

(f) From a person having an agricultural income, and the recipient also having agricultural income and neither of them is chargeable to income tax.
Consequences of violation: A penalty of an amount equal to the amount taken in cash will be levied.

2. Repayment of Certain Loans or Deposits

Any branch of a banking company or cooperative society, firm, or other person is not allowed to repay any loan or deposit in cash if

(a) The amount of the loan or deposit or specified advance* together with the interest, if any, is Rs.20,000/- or more, or
(b) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with another person on the date of such repayment together with the interest, any, is Rs.20,000/- or more.
(c) w.e.f 2019-20. TDS @ 2% to be deducted on cash withdrawals of Rs. 1 Crore in a year from a bank account for business purposes.

To any person who has made

a) The loan or deposit or
b) Paid the specified advance*

This provision does not apply to-
Repayment of any loan or deposit or specified sum* taken or accepted from –

(a) Government;
(b) Any banking company, post office savings bank, or cooperative bank;
(c) Any corporation established by a central, state, or provincial Act;
(d) Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
(e)Such other institution, association body, or class of institutions, associations, or bodies which the Central Government may specify by notification in the Official Gazette.
(Refer Sec.269T)

*Specified advance means any sum of money in the nature of advance, by whatever name called in relation to the transfer of immovable property, whether or not the transfer takes place.
Consequences of violation: A penalty for an amount equal to the amount of such loan or deposit repaid will be levied.

3. Other Cash Transaction

No person is allowed to receive in cash an amount of Rs. 2,00,000 or more-

(a) In aggregate from a person in a day; or
(b) With respect to a single transaction; or
(c) With respect to transactions relating to one event or occasion from a person,

This provision does not apply to-

(i) Any receipt by-
(a) Government;
(b) Any banking company, post office savings bank, or cooperative bank;
(ii) Transactions of the nature referred to in section 26955;
(iii) Such other persons or class of persons or receipts, which the Central Government may specify by notification in the Official Gazette. (Refer to Section 269ST)

(d) w.e.f 2019-20, Digital payments (Mode of electronic payments) are permissible in addition to account payee cheque, account payee bank draft, or electronic clearing system through a bank account. Persons having business income and turnover/ receipt exceeding 50 crores in a financial year are mandatorily required to accept payment through prescribed electronic mode or other electronic modes only. In case of failure to do so, it would attract a penalty of Rs. 5000/- for every day during which such failure continues.
Consequences of violation of this provision: penalty us. 271DA is levied for a sum equal to the amount of such receipt.

4. Disallowance of expenses incurred in Cash

In case a person incurs any expenditure for his business or profession, in respect of which payment or aggregate of payments made in cash in a day exceeds Rs. 10,000/-, 100% of such payment will be disallowed while computing his taxable income from business/ profession.
(Refer Section 40A(3)). However, some exceptions are provided (See Rule 6DD of the Income Tax Rules).

5. Deemed Income of the Subsequent year in which payment is made

In case an allowance has been made in respect of any liability incurred by a person for any expenditure, and then during any subsequent year the person makes payment in respect thereof in cash, the payment is chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day exceeds Rs. 10,000/-.
In case payment is being made for plying, hiring, or leasing goods carriages, then the limit is Rs.35000/-, instead of Rs. 10000/-.

6. Disallowance in respect of Fixed Assets i.e. Capital Expenditure

In case a person incurs any expenditure for the acquisition of any asset in respect of which a payment or aggregate of payments made to a
person in cash in a day exceeds Rs. 10,000/-, such expenditure is not included for the purposes of determination of the actual cost of such asset. This means that no depreciation benefit will be available on such capital expenditure incurred in cash.

Read More: GST, IT, Companies, PF, and ESI Acts Due Dates: October 2022

7. Cash Donations

Donation made in cash to a registered trust or political party, if exceeds Rs. 2000, are not allowable as a deduction u/s 80G.

8. Premium on Health Insurance

Any payment made in cash on account of premiums on health insurance facilities is not allowable as a deduction u/s 80D of the IT Act.