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PayPal Restricts Payments To India, Bars Purchases; Why They’re Right

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So I’m going to go against popular sentiment, and stick my neck out and say that the restrictions put by RBI on PayPal, announced yesterday, and in force from March 31st 2011, are right. Here’s what has happened – after almost of a year of to and fro between PayPal and India’s Reserve Bank of India, PayPal announced last night that it is amending its user agreements to bring about two significant changes:

1. Can’t store money in Paypal Account, and can’t buy online. Any balance in and all future payments in an Indian users PayPal account cannot be used to buy goods or services, and needs to be transferred to their bank account within 7 days of receipt. What this means is that Paypal is essentially functioning as a money transfer service, and not an online wallet.
2. Can’t receive payments for goods and services exceeding $500 per transaction.

What this means:

PayPal is no longer an online wallet operating in India: Online wallets, not linked to bank accounts, are not allowed in India, and for years now, PayPal has been operating as an unauthorized wallet. The way it has operated means that for services to be performed in India, money has been stored with PayPal, and used to make payments overseas. Remember that Wallet365, from the Times of India Group* was shut down a few years ago. Our stand has always been that if PayPal is allowed to operate as an online wallet in India, then so must others. The RBI does allow prepaid cards (cash in, but no cash out), but not online wallets (cash in cash out systems).


– For Freelancers: this is not a good development from a developers perspective: many students and employees have been, on the side, moonlighting as developers, and in order to pay for server space or domains, instead of using PayPal, they will have now to remit the entire payment to India, to their bank account, and then use a credit card or net-banking to make payments. This means that now, for the entire income, they will have to at least pay personal income tax, whereas, earlier they didn’t need to. It’s the governments right to collect tax on any such income, which it was earlier being denied by those maintaining money in the online wallet. Now, they can only transfer money.

So don’t blame the RBI (a reader sent us a mail titled “PayPal & RBI Screwing Freelancers again”): if PayPal wants to operate in India, it must abide by the laws of the land. Just because they were operating as a wallet earlier (and making money from it, incidentally), doesn’t mean it was right; there’s always a lag between industry practices and regulation.

My sense is that the limit that the RBI has set, of $500, is notional. It’s possible that after observing payment trends and ensuring that PayPal is conforming to its guidelines, the RBI might increase the amount. After all, it’s income for the country.

PayPal Alternatives, And What You Need To Know About Them

Over at PluggdIn, they’ve published a list of alternatives for PayPal. By the looks of it, some of these are payment gateways, and not really wallets. If they are wallets, then you should know that the same regulation will apply to them. They might get away with it for a while, but it won’t last. The RBI will always have the upper hand in this matter – they can simply tell banks to stop accepting payments from an errant gateway.


The PayPal vs RBI Timeline:

Feb 5th – 14th 2010: PayPal Disallows P2P Payments, Transfers To Local Banks
Feb 27th 2010: PayPal To Resume India Payments By 3rd March; Export Code Needed
Mar 2nd 2010: PayPal Payments In India Will Require ‘Purpose Code’; Still No P2P
Mar 18th 2010: PayPal Needs To Comply With RBI Regulations By April 30th, 2010

Jan 18th 2010: PayPal Restricts Payments To India To $500, Bars Purchases; They’re Right


Email Received From PayPal

Dear Nikhil Pahwa,

As part of our commitment to provide a high level of customer service, we would like to give you a 30-day advance notice on changes to our user agreement for India.

With effect from 1 March 2011, you are required to comply with the requirements set out in the notification of the Reserve Bank of India governing the processing and settlement of export-related receipts facilitated by online payment gateways (“RBI Guidelines”).

In order to comply with the RBI Guidelines, our user agreement in India will be amended for the following services as follows:

  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.

We seek your understanding as we continue to employ our best efforts to comply with the RBI Guidelines in a timely manner.

We regret any inconvenience caused to you and hope the advance notice will enable you to plan your future use of our services accordingly. For further information, click here.

If you have any questions, please contact PayPal customer support by logging into your PayPal account and clicking on ‘contact us’ at the bottom of the page. We sincerely thank you for your patience and continued support.


The PayPal Team

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  • Dr.Sasi Attili


    Thanks for the excellent article. Do you know if paypal is allowing users to now accept payments through Indian credit cards. It suspended that a few months ago .https://www.paypal.com/helpcenter/main.jsp;jsessionid=NRRGNklLQ4YlJHv5BW1d7TL8Pxvwh2nVbcVZVfxyJj72khkyGtvy!1266735493?t=solutionTab&ft=homeTab&ps=&solutionId=1205311&locale=en_GB&_dyncharset=UTF-8&countrycode=GB&cmd=_help&serverInstance=9016



  • Here's the problem though.

    1. The exchange rate Paypal uses for withdrawals is way too less than the current rate and is often off by a rupee.

    2. For withdrawals less than Rs. 7000, they charge a fee of Rs. 50. So if I get $100 as payments every 15 days, I have to pay that fee compulsorily. This is probably the banks charging the fees, but it's still a hassle to the customer.

  • 1. All Indian PayPal accounts have to be associated with a PAN number. Why can't PayPal and RBI work together to use these PAN numbers to track if people are committing income tax fraud – instead of preventing legitimate business?

    2. The $500 restriction serves no purpose if the money is to be transferred automatically to a bank a/c in 7 days.

  • I agree that it is not the fault of PayPal. They have to obey the RBI orders.

    Now that, there's a cap of $500 per transaction, how are we supposed to receive funds from customers abroad? Wire transfer is ridiculously expensive. Can RBI do something about it?

  • JJS

    This means that now, for the entire income, they will have to at least pay personal income tax, whereas, earlier they didn’t need to.

    That sentence of yours is incorrect I'm afraid.

    You are supposed to pay tax only on profit if you are a business.

    So even with the new regulations, you will pay tax on Money received in the bank- money spent for expenses related, which is precisely what the folks were doing earlier.

    • businesses have to pay tax on profits, but individuals who are freelancing while still in a job would have to pay personal income tax, unless they're accepting money as proprietorship

  • If tax evasion is a problem with PayPal, it is certainly not PayPal’s problem. PayPal functions in other countries perfectly without such stupid rules and the taxes still get paid – because they’ve got systems on THEIR END in place which ensure tax evasion and stuff doesn’t happen.

    Congratulations to the RBI for taking a hundred steps backwards.

    • Sameer: tax evasion is the RBI's problem. They're dealing with it by regulating Paypal. I'm all for online wallets, but within reasonable regulations – linked with bank accounts, so that "know your customer" norms can be followed. It was an issue with prepaid cards like Itz cash as well, and those are now being regulated. No doubt, PayPal and online wallets will be addressed soon.

      • Sumit

        Oh so you love regulations! My goodness what a joker of a entrepreneur you are.

        • As an entrepreneur, you know that regulations are a reality of business. You make hay as long as they're not in place, then you try and define regulations with lobbying, and finally you learn to work with and around them. That's pragmatism, and entrepreneurs realize that.

          In fact, if you're not aware and prepared for regulations, that makes you a rather poor businessman. You'll always be caught out.

        • Sumit

          And the love for regulations continues… You're trying a clever short-cut Nikhil. Pragmatism is a must practice for everyone, and it applies for authorities too. Stop calling entrepreneurs poor businessman.

          However, I take your advise to be prepared for regulations. More regulations. Let's all be money-wise poor entrepreneurs, okay. But then you're poorer in terms of vision, love for progress of the country and pragmatism completely. Accept it, sir.

        • I don't love regulations, but I don't despise them either. Depends on the specific regulation and what it intends to do. There are clauses that I agree with, and those that I don't agree with. Our coverage of each regulation looks at pros and cons. It's about looking at the details, and not a blanket like or dislike.

          In this case, I don't agree with the regulation (I'm FOR online wallets and don't agree with the $500 limit). But I think the RBI is right to force PayPal to comply with the regulation. Now they need to allow online wallets, not just payment gateways.

          But looks like you've already made up your mind about me…

        • Sumit

          No I haven't made up my mind about you. But then your article doesn't align with your final reply. That's quite revealing, and IMHO suggest poor premise for a piece by an author of your means.

          I did expect better.

  • Srikant

    The logic behind the latest development regarding payments and storing money with paypal can be understood to some extent.It should not be a major problem if some other issues are solved.Another big problem for indians
    they can't transfer money from their debit cards.paypal have a option to add debit cards but its not working with indian debit cards.That means its impossible to make payment thru paypal if one is not having a credit card.This logic is baseless and absurd.Both debit and credit cards have visa or mastercard logos and they are managed by these networks.But while RBI and these VISA network is authorizing porn and criminal websites to take money from credit cards on the other hand one can't even make legitimate payments thru debit card.I have doubt that these people are scandalous in their functioning.

  • i dont think this is going to help any purpose, it just shows that "Oh My Gosh RBI is still functional and very busy"…anyways RBI shud concentrate on Swiss bank accounts of our beloved ministers and business men…keep it up RBI u r really functional, i almost forgot you

  • Ashish

    Hey, if we all of freelancers write to RBI about our issues, may be they think to change the policy. what you think guys, please get the contact of RBI officers and we will write e-mail or lettter. please update my suggestion.


  • Ashish

    Hey, if we all of freelancers write to RBI about our issues, may be they think to change the policy. what you think guys, please get the contact of RBI officers and we will write e-mail or lettter. please update my suggestion.


    • Aman Kumar

      No Ashish, this way it is not going to work….. If you want them to listen to you, just meet some politicians from opposition parties either it is BJP or some other one, make a full on TAMASHA outside RBI headquarters with their help, burn the PUTLAS (effigies) of these rascal RBI officers or issue a huge traffic jam or RAIL ROKO ANDOLAN and make sure all this is covered by media channels, then all this issue will become a national topic and then these bastard RBI officials will listen to us… TRUST ME WE ARE A TOTALLY CORRUPTED AND ROTTEN NATION NOW!!! (Maybe Swami Ramdev can help, try to let him know of all this)

  • Sumit

    Nikhil you sound like typical TOI/HT reporter who will stick his nose up high and see very little on the ground. These regulations, tax structure and entire British cut-copy-paste Governance from RBI, GOI and ilk is going to throw us back in time. While the world has moved forward, already.

    You need to wake up, sit away from some of your own ego-perception of reality and then choose to write the real thing. Of course, it is your choice to take this criticism in positive light or … live in ignorance.

    • World had been moving towards recession while Indian thrived, all because of RBI control. Paypal had been screwing you all the time and you are still on their side. When you have a 7 days limit, paypal won't be able to block your funds from withdrawal. RBI has not imposed any $500 limit, it is paypal that does not want to report transactions and is trying to circumnavigate the rules, Paypal is screwing the entire nation and you think they are right. Moreover why Paypal pay you in INR why not in USD, they are denying you to take benefit of foreign exchange earning and over that they use low conversion rates, why are they charging for withdrawal below Rs. 7000, while using NEFT/RTGS through their local account with Citi Bank.

      We have corrupt politicians and bureaucrats because we don't care and have "sab chalta hai" attitude. Think it over, join together and force Paypal to follow Indian rules if they want to operate in India, and don't worry they can't ignore or leave India now, if they do they will be doomed too.

  • Guys,

    Here is a simple catch for this problem.


    I hope it can help to minimize the impact on your business. Please let me know if you face any problem after following this strategy.

  • prash thiruvaipati

    Nikhil. I’ve followed the complete trail of this post and related post by abhishek and another one leading from his post. This is a topic very close to the heart of freelancers. I see the main issue as the $500 limit. Users don’t care about the exorbitant charges of paypal because of lack of alternatives. On the same lines i assume people don’t mind paying taxes. Would be great if you and readers suggest work arounds to this. Rbi and paypal bashing is not going to help. I know Tata Tele services is planning an online wallet which sticks to Rbi guidelines; but this will only serve domestic market needs. This could be an interesting start up idea for entrepreneurs out there.

  • prash thiruvaipati

    What about good old western union?

    • Western Union is quite expensive and also people knowing you well for sometime will agree to pay like that. For the $500 limit, better use some invoicing solution (there are many good scripts out there) and raise multiple invoice to keep amount below $500.

  • Srikant

    Hey guys i really don't understand why you are concentrating on this 7-days withdrawl to bank rule.The online wallet issue is not that big for indians.The question is whether you will be able to send and receive money using paypal or any other alternative.It is possible to instantly send money thru paypal if you link a credit card.But what about thru debit cards in india.I have tried this and its not working.So if you have any suggestions please provide here.Also you can suggest some alternative solutions here

  • I agree with Vinsar here. RBI has been quiet lenient with Paypal. It is paypal which refuses to follow rules of the land. After all paypal is like hawala. They do not report these inflows to the IT dept and use varies measures to avoid taxations. Why can’t they just follow the rules of the land and do legal business here ?

    Last time you guys shouted about credit card payments requiring verified by visa. In the end it proved to be more beneficial (in terms of fraud protection and confidence building) than hindrance.

  • Anurag

    RBI whiners, were you sleeping in a cave when the west was down with recession and India was left untouched due to RBI’s foresight?

    • Sumit

      When the west was down with recession, you were down with recession too. And now with the west rising again, you are going further down into hunger, inflation and more recession. Dumbo stop drinking your own kool-aid of regulations, stupid socialist rats.

  • This looks like a case of throwing the baby out with the bathwater. Agree that whatever the regulation, PayPal has to abide by it. But, wondering if anyone in the RBI has given any thought to balancing the convenience of PayPay (and other online Wallets) with the need for tracking export income? After all, such mechanisms already exist in place. PayPal can make it mandatory for all account holders to disclose their PAN and for those that don't, follow the same process that banks do, automatically deduct 10% as tax and remit it with the IT department. The need for multiple transactions from foreign currency to Indian and back and the resulting transaction costs are obviated.

  • Jhone

    I am very clear RBI is playing the dirty game. Govt. is always behind the common man. They cannot stop the black money of the corrupt politician. They cannot control the increase in price rise. They can only squeeze the Amm Admi. The RBI policy makers are always blind for ordinary people.

    Throughout the world, people are using PayPal. We Indians cannot. Hundreds of housewives, retired man and young entrepreneurs were using PayPal to earn their bread. They do not have credit cards. You can never understand the pain of those Indians. Your relation with RBI is very clear in your post. Do not advocate for RBI.

    To keep the skill up to date we need latest software and technology. RBI wants to keep us in the stone age. As an housewife through PayPal and Internet I was able to buy very low cost ( <$10) eBooks and software. Now, I cannot do that. Shame to RBI !!!

  • debojit

    well…RBI and Govt. failing to bring money from Swiss bank and in that case, they are trying to cover such amount by imposing unnecessary rules upon paypal kinds of services.

    Personally i thinks, there is no need to impose limitation on "buying something using paypal" . RBI can restrict a specific amount of buying. Then at least people could buy items of small price.

    RBI could impose some tax on purchasing items using paypal money instead of disabling it. Paypal already takes fees from transaction. Paypal could take fees from buyers too and delivered to RBI as taxes.

    It is obvious RBI and Indian Govt. cant catch professional thieves and limiting other people's activity to control the damage.

  • What I am clueless is what will happen to the money in Paypal a/c if its not transferred within 7 days of receiving it? Is it mentioned anywhere is the Paypal user agreement about this?

  • Prathapan

    This is a regressive step on the part of RBI. Government of India has no intention to book the big time evaders stashing away their money in Swiss accounts. With this step, they are targeting the small guys – the freelancers and entrepreneurs who make a living delivering services over the Internet, collecting small sums for their freelance work, and paying for servers, images and e-books from the same account. I suggest allowing up to Rs.2 lakhs business a year per person, that's surely within taxable income?

  • Hello from USA. I would like to tell you that I think your RBI is doing right by you in India. You have not felt the wrath of paypal to the degree that others have in the US and other countries and that is because PP is still not at a critical mass yet in India to use Indian customerrs are leverage to provide Paypal yet another exemption. Paypal is set up to be an offshore account, they call it everything else but the reality is that is exactly what they operate as. It is time that the regulators scrutinize the operations of Paypal. I do not think many are aware that as Paypal operates in over 100 countries that there is inadequate regulatory oversight. In this case RBI sees them as basically operating illegal, RBI could have seized all the assets back from Paypal for ill-gotten gains. In fact, one shoudl wonder whether Paypal knew that could have happened last year and that is the reason they were clawing back into the bank accounts after transfers. For that, in many ways is the greatest risk all users face.. that for Paypal not obtaining proper regulation, each country central bank has the right to seize PAYPALS assets. And what do you think Paypal would do? They will probably seize your money to choke off their own loss & risk taking. Do you think that is a proper way for a financial institution to operate? Right now you are feeling great economic pain & I can empathize with you.. but ask yourself where is the competition and in the end, would you rather have an authority who can provide oversight over companies to ensure they are operating properly & not posing a risk to the financial ecosystem? Ask yourself why did Paypal feel they were above regulation, did they place dominance & corporate profits over safety & soundness. My Indian peers on this great big internet, Paypal is not your friend.

    Nikhil: Can you find me PM me, I want to ask you something.

  • Javaindian

    can i send money from India to other countries less than $500? if i want send $ to other countries for a service do paypal converts the indian rupees to $ by itself?

  • Anil Sharma

    Making money online is actually very easy as long as you have the idea and knowledge what to do. As far as I am concerned this now the hottest income generating activity. In fact, I’ve known a lot of people who became rich because of the internet. Anyway, if you happened to earn a lot, you can use this site https://www.okpay.com for online money transaction. Thank you for posting, I’ve learned a lot from here.

  • Anil Sharma

    We know the fact that earning money online today is very hot. If you happen to earn money online, you can use this site https://okpay.com for online money transactions. I believe as of today, this is the best paypal alternative. Not only that you can transact money from this site but also you can earn money from it. The site has a very nice referral system.

  • Ashish

    Accept it or not PayPal has become the need for any Indian doing online business.

    If RBI is so concerned about PayPal acting as an online wallet, then why doesn’t it develop a system like PayPal (enormously popular among international customers) to make Indian freelancers and web-designers able to accept and make payments ?

    Even if RBI develops a system like PayPal then also it can’t make it popular among international customers overnight.

    RBI can only dictate and make hell the lives of common man doing online business. All online business activities will come to full-stop in India.

    Does RBI have any idea that a large number of Indian freelancers and web-designers depend totally on PayPal for their daily bread and butter ?

    RBI and the Indian Government should better focus their mind on preventing corruption and taking back home the black money of BABUS and POLITICIANS from their Swiss accounts.

    But how can they do that ? They themselves are involved in such black activities.

    Please RBI and Manmohan Singh Government, don’t make miserable the life of common man doing online business.

    We WEB-DESIGNERS and FREELANCERS are fucked up !!!!!!!! :( :( :( :(