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Home > Income Tax > Help Center > CBDC (Digital Rupee) Vs UPILast Updated: Jan 31st 2024

CBDC Digital Rupee vs UPI — Explained

UPI and CBDC (Digital Rupee) are two distinct payment systems that have experienced significant surges in popularity in recent times. Each of the two payments has advantages and disadvantages.

Discover the key differences in terms of use cases, status, acceptance controversies

CBDC Digital Rupee vs UPI

This document covers

  1. UPI
  2. CBDC Digital Rupee
  3. UPI Vs CBDC Digital Rupee
  4. Which one you should prefer?

1. UPI

  1. UPI means "Unified Payments Interface". It is a real time payment system which is developed by NPCI (National Payments Corporation of India).
  2. UPI facilitates inter bank peer to peer (P2P) transactions and Person to Merchant transactions (P2M)
  3. UPI is used on mobile devices. The mobile number of the device is required to be registered with the bank and the UPI Id of the recipient can be used to transfer the money.
  4. Internet or Mobile Network is mandatory for making UPI Payments.
  5. UPI enabled App is a must to make UPI payments with the bank link.
  6. UPI's are controlled by consortium of banks
  7. UPI payments involve the transmission of funds from the bank account of the sender to the bank account of the recipient. In response to NPCI's request, the sender's bank must discharge the funds and transmit a debit response to NPCI once the debit is completed successfully.

    The receiving bank will credit the requested amount to NPCI and provide NPCI with a credit response once the credit has been completed successfully. The actual settlement occurs during the non-immediate bank settlement cycle.
  8. As of now UPI is the most successful mode of payment with high number of users and volume of transactions


  1. CBDC means "central bank digital currency" which is issued by central bank. CBDC is a digital version of country’s national currency.
  2. Most of the countries are creating their own CBDC For Example, RBI has launched the digital rupee which is controlled by Rupee
  3. CBDC serves as alternative to cash and physical currency which is much easier to use. CBDC can be issued in the forms of tokens or accounts based format
  4. CBDC facilitates the transfer of money from one digital wallet to another
  5. By using CBDC, the sender will exchange the coins with the recipient and the transfer happens instantly.
  6. Internet or Mobile Network might not be required

In India, RBI is still exploring the Digital currency option and it might take some considerable amount of time to launch digital rupee in India

3. Compare UPI vs CBDC Digital Currency

SubjectUPICBDC Digital Currency
DefinitionUnified Payments InterfaceCentral Bank Digital Currency, a form of Digital Currency, aka eRupee (e₹)
Controlled ByNPCI (National Payments Corporation of India)RBI (Reserve Bank of India)
FacilitatesInter bank peer-to-peer (P2P) transactions and Person-to-Merchant transactions (P2M)CBDC from one digital wallet to another or A rupee amount from a bank account into a digital wallet in the form of CBDC tokens
Devices to haveMobile DevicesMobile Devices
DenominationsNo denomination as such; in increments of Rs. 1e₹2, e₹5, e₹10, e₹20, e₹50, e₹100, e₹200, e₹500, e₹2,000^
Use CasesMoney transfer between Wallets, Purchases, GiftsMoney transfer between Wallets, Purchases*, Gifts*, FDs*, Investments*, commercial paper*
Internet / NetworkNeed InternetInternet not needed at the time of Wallet Transfer
Transaction Processing TimesReal-Time PaymentsClose to Real-Time Payments
SecurityComposite Transaction across Banks, UPI Networks, Mobile NetworksBlockchain ledger is maintained
International UsageUsed in US, and few other countries for NRIs on a pilot basis.Scope for international use but may take time to implement.
Form of CurrencyNo Physical Form, All DigitalNo Physical Form, All Digital. Unlike UPI, Currency is represented in tokens and is very similar to physical currency, except in digital form.
Current StatusOperational and Very SuccessfulOngoing Pilot mode across 13 banks in India
AcceptanceWell Accepted; Anyone with a smart phone and a bank account can start using.In Pilot mode; expected to accept where UPI is being accepted. Available in both Retail CBDC and Wholesale CBDC
Why to use?UPI is only interface that is quick, easy, secure and scalable at this time.CBDC can also work in remote places where there is no internet, though you need the network from time to time.
Cost to UseUPI when used for business, the payment gateways charge 2.5% of the transaction amount, which is very high compared to Physical Rupee Note.CBDC Digital Rupee is controlled by RBI and is expected to have no to low transaction cost for businesses. Remember, there is no intermediary required for CBDC.
ControversiesUPI is well accepted but the MDR fees of 2.5% from the payment gateways make the public loose 2.5% for every transaction. Absolutely un-acceptable, hope the Govt of India will remove MDR fees in future.CBDC unlike UPI is a stored tokens that can be used without any MDR fees while transacting. There are rumors that CBDC in it's final form comes with a currency expiration.

* Expected in near future (as on Jan 2024).    ^ Usage is yet to be confirmed.

4. CBDC vs UPI: Which one you should prefer?

Each of the two payment methods has its own benefits and drawbacks. When deciding between CBDC and UPI, security, speed, acceptance, maintenance fees, and other considerations come into play. CBDC provides a higher level of security in comparison to UPI due to its central bank operation. The merchants' adoption of CBDC may require a slightly longer duration when compared to UPI.

In the end, it is the individual's choice, contingent on the situation at the moment of payment.

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Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.