Paypal India Payments Restricted Again!

By Posted 2011 Updated   India

Paypal India has given a 30 day notice for new payment limits to all Paypal users in India  as per new changes in user agreement for India to comply with Reserve Bank of India (RBI) guidelines governing the processing and settlement of export-related receipts facilitated by online payment gateways

Last year Paypal had stopped Personal Paypal payments and electronic bank transfers to India, introduced a purpose code for bank withdrawals, to comply with RBI guidelines and now new limits have been imposed which make Paypal usage practical only for limited funds and small money transfers.

Paypal India Bank Payment Limits

With effect from 1 March 2011, you are required to comply with the requirements

  1. Any balance in and all future payments into your PayPal account may not be used to buy goods or services and must be transferred to your bank account in India within 7 days from the receipt of confirmation from the buyer in respect of the goods or services; and
  2. Export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction.

I guess many people were just shopping with the Paypal funds and not crediting it back to their Indian bank accounts to disclose lower business income and save tax. This tax evasion may be at such a scale that it prompted the RBI to intervene. A new FAQ section has been posted to explain the issues.

Q: Why will PayPal not allow me to receive more than US$500?
Starting 1 March, 2011, PayPal customers in India will not be allowed to receive payments for any export-related goods or services for an amount exceeding US$500 per transaction. This change is to ensure that we continue to comply with the RBI Guidelines.
Q: Why will PayPal not allow me to keep money in my PayPal balance?
Starting 1 March, 2011, PayPal customers in India will not be able to keep money in their PayPal account balance. Instead, all money received into a PayPal account must be transferred to a customer’s India bank account within 7 days from the receipt of confirmation from the buyer in respect of the good or services. This change is to ensure that we continue to comply with the RBI Guidelines.
Q: Will my customers be able to complete their checkout with their PayPal account balance?
We’re glad that you offer PayPal to your customers. Unfortunately, we will not allow customers in India to send money from their PayPal account balance starting 1 March, 2011. This means that your customers will need to link a credit card to their account in before sending you money with PayPal. This change is to ensure that we continue to comply with the RBI Guidelines.
Q: The customers on my website are not able to complete purchase or pay via PayPal. Why?
Starting 1 March, 2011, PayPal customers in India will not be allowed to receive payments for any export-related goods or services for an amount exceeding US$500 per transaction. If you are listing products greater than US$500 per transaction then you may need to seek alternative methods of payment. This change is to ensure that we continue to comply with the RBI Guidelines.
Q: What is meant by receipt of confirmation from the buyer in respect of goods and services?
As an exporter of products or services abroad, you need to ensure that your buyer has received the product or services as per specifications set out on your website. As an exporter of goods, you may withdraw the balance to your bank account in India upon reasonable consideration of shipping time and other clearances such as excise and customs for the destination country. As an exporter of services, you may withdraw the balance to your bank account in India upon receipt of payment from your buyer into your PayPal account.

Basis of Paypal India Restrictions

Keith got an interview with an ex-RBI employee to explain some issues why this is happening.

Q: So PayPal says that they cannot keep the money in their account for more than 7 days? Why is this happening.
RBI-expert: Because if PayPal keeps the money with them, they have to be regulated as a bank (and any institution that does it have to do the same) and PayPal does not want that to happen. Any entity which provides on-demand payments have to be regulated as a bank as per RBI rules, this is mandated because if they hold money for more than 7 days they have to provide users with interest.

Q: I do understand that they want to make money, but what is about $500 transaction limit.
RBI-expert: Well, once again this is a government and RBI mandated thing. All entities who bring cash-flow into India have to basically report transactions above $500 to the RBI and government. PayPal is basically just circumnavigating around this mandate by restricting the payments to $500. Once they do this, they have no obligation to report it to the RBI or the Indian government.

While some Paypal alternative services have been suggested, I guess most will have to comply with the same regulations to work in India. I am now activating check payment options (instead of Paypal) for all my affiliate and advertising services (thankfully Google Adsense already sends by check). How are you planning to deal with this?


22 comments on “Paypal India Payments Restricted Again!

  1. Gouthaman Karunakaran says:

    That was very comprehensive. BTW, Isn’t it Cheque? You’ve written Check.

  2. Latest Gadgets says:

    Why this all happens again and again to just india and some other developing countires…
    i dont understand what is problem with RBI or Paypal everytime creating problems for india blogger and publishers to recieve payments and purchase products online..
    Its very easy to suggest other paypal alternatives but the payment giving companies dont provide options other than paypal…

  3. Nav says:

    What will happen to the existing paypal balance if i dont withdraw it? Will the balance be automatically be deposited in the bank.

    My account has limited access and It is under reveiw. can anyone tell me if paypal will deposit the money in to my account or do i need to wait for 180 days.

  4. Harsh Agrawal says:

    This is a disastrous news for Indian paypal users and personally I’m sure I will be facing lots of issues as most of my affiliate sends me more than $500 at one go…
    I have to check with individual affiliate program and see how they dealing with this situation for Indian users.

    • QuickOnlineTips says:

      We will have to switch to cheque options for most affiliates. As most send by ordinary post, keeping track of them, depositing them and waiting for weeks to get credited is a big task. Some do not offer cheques to India like Jobamatic! I have emailed them if they can start offering checks to India.

  5. Shelly | bricks-n-mortar says:

    Although its apt for high-fly Paypal users in India to be bit concerned about changing guidelines that call for mending ways transactions were taking place till now, or start looking for alternate methods; yet if we look into perspective of larger scenario, we should not find faults with the system.

    Its we young enthusiast Indians only who gathered & took out large processions across cities & towns of India 2 days back only to demand that ways of corruption and malpractices prevalent in today’s India be mended by many a ways available.

    RBI has perhaps noticed for long that not all net-savvy net-using people like you and me and us were reporting their income’s and paying taxes. Moreover, just think about notorious people and gangs misusing these services to siphon-off money by rotating it in many illegal ways.

    I personally think we should take this measure as another small step towards better India. As QOT mentioned, getting payments by cheque is another valid option available by which one can keep account of his/ her/ their transactions ethically and contribute one own’s share of good practice.

    • Nav says:

      thumbs up

      • Shelly | bricks-n-mortar says:

        Thanks for the ‘thumbs up’ Nav :-)
        Guess how many reading this blog post would agree with mine and your viewpoint?!!

        • Nav says:

          Those who arent mean will definetely agree to what you have said. But those who are just concerned abt their money in short term wont agree.

          RBI only acted on the 50,000 Odd complaints they received from Paypal users in India. They didnt just jump out of a blue moon and changed the regulation.

    • MB says:

      Well, they should then consider a check on funds being deposited in the bank accounts, not PayPal. I’ll now have to work around a way to pay my suppliers directly in USD. I get payments in USD so if I were to withdraw and pay via credit cards, well that’d roughly give me a loss of 7-7.5% of revenue—just in currency conversion.

      Now that fee—I hate that!

  6. BODHost Ltd says:

    Hi

    At first I’d like to appreciate Shelly’s comment.:) People need to understand the intention behind these kind of restrictions and there are lot of options available for online transactions such as “bank wire transfer”.

    • Shelly | bricks-n-mortar says:

      Sending you a beautiful e-bouquet, ‘BODHost Ltd’
      Seems a lot many would align with this positive thought of ours :-)

    • ME says:

      Well, do you really thing that someone would use a wiretransfer for $5 or for the fact $20, $100 or so. The fees for them are just not justifiable for low value transactions.

      • BODHost Ltd says:

        “PayPal account may not exceed US$500 per transaction.”

        So there is no problem when you need

  7. Nav says:

    Personally speaking, Big Thumbs up for RBI.
    Everyone here is just concerned about receiving their money. The fact is there are thousands of Indian Paypal Users affected by Paypal.

    Paypal has either made their accounts limited or froze their accounts. RBI has acknowledged paypal uses unfair business practices. Paypal is just a payment processing company in India and freezing someone money is a Theft. Which paypal has been doing from a very long time without any fear because it was having a monopoly.

    Finally glad RBI has showed the doors for a fraudelent company like PAYPAL, who has a million complaints worldwide and who dont care about customer service.

    Some day or the other everyone will get affected by paypal, so rather than moaning try and find an alternative solution.

  8. Gouthaman Karunakaran says:

    I understand about people freezing their money in PayPal, but we give them our PAN Card Number, right? Why should the RBI do this then?

    I think it’s PayPal’s decision to impose these limitations just because they don’t want to bow to RBI to survive.

  9. Julian says:

    is it just Paypal or some other kinds too?

    (like Alertpay, etc)

  10. Web Hosting says:

    Paypal is seriously giving out a threat to users in India and position looks shaky as Paypal is not taking any steps. Time to look for PayPal Alternative.

    • BODHost Ltd says:

      Why should PayPal take any steps when the rule is applied by RBI, and I believe the same rule is applicable for other payment gateways as well.

      There is nothing wrong behind RBI intent, because government needs to know what kind of transactions and activities are going around.

  11. Vivek says:

    I think, RBI should allowed to have foreign currency account with credit card enabled for online bloggers so that currency conversion charges can be avoid. This is utter nonsense to pay currency conversion on both end, while receiving money you pay 2.5% with paypal, while receiving with cheque is more pathetic, Rs. 350+ one time fees plus other fees.

    They can create new channel like we have Service Tax registration process where you can register and then get better treatment.

    We are helping Indian economy by bringing money in , then those rascals stealing money to tax heavens.

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