(C) (A) is true, but (R) is false.
Assertion (A) is correct — no individual in India can legally refuse a payment in rupees. However, Reason (R) is false because the rupee is authorised by the Central Government (not State Governments), and currency notes are issued by the Reserve Bank of India on its behalf.
The key fact from the textbook: "In India, the Reserve Bank of India issues currency notes on behalf of the central government… the law legalises the use of rupee as a medium of payment that cannot be refused." The Assertion is directly from the textbook and is true. The error in the Reason is the phrase "State Governments" — authority rests with the Central Government/RBI. Examiners specifically test this distinction.