Paypal India Payments Restricted Again!

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?