wordpress blog stats
Connect with us

Hi, what are you looking for?

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

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.

Advertisement. Scroll to continue reading.

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:

Advertisement. Scroll to continue reading.

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.

Advertisement. Scroll to continue reading.

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

Advertisement. Scroll to continue reading.

Written By

Founder @ MediaNama. TED Fellow. Asia21 Fellow @ Asia Society. Co-founder SaveTheInternet.in and Internet Freedom Foundation. Advisory board @ CyberBRICS

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



The Delhi High Court should quash the government's order to block Tanul Thakur's website in light of the Shreya Singhal verdict by the Supreme...


Releasing the policy is akin to putting the proverbial 'cart before the horse'.


The industry's growth is being weighed down by taxation and legal uncertainty.


Due to the scale of regulatory and technical challenges, transparency reporting under the IT Rules has gotten off to a rocky start.


Here are possible reasons why Indians are not generating significant IAP revenues despite our download share crossing 30%.

You May Also Like


Google has released a Google Travel Trends Report which states that branded budget hotel search queries grew 179% year over year (YOY) in India, in...


135 job openings in over 60 companies are listed at our free Digital and Mobile Job Board: If you’re looking for a job, or...


Rajesh Kumar* doesn’t have many enemies in life. But, Uber, for which he drives a cab everyday, is starting to look like one, he...


By Aroon Deep and Aditya Chunduru You’re reading it here first: Twitter has complied with government requests to censor 52 tweets that mostly criticised...

MediaNama is the premier source of information and analysis on Technology Policy in India. More about MediaNama, and contact information, here.

© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ

Subscribe to our daily newsletter
Your email address:*
Please enter all required fields Click to hide
Correct invalid entries Click to hide

© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ