The grip is slowly loosening: after placing restrictions on PayPal in India, it appears that the Reserve Bank of India has allowed PayPal to increase the receiving limit to $3000 per transaction; In March, it had placed a limit of  $500 on transactions. Last month, PayPal forced auto-withdrawal upon Indian customers, ensuring that it functions as a payment gateway rather than a wallet by transferring money to Indian banks within a stipulated time. It still can’t operate as a wallet – money received cannot be used to make payments.

This increase in limit to $3000 will come as a relief to individual outsourcing businesses using PayPal, since the $500 limit meant that they had to request payments in multiple transactions. (Hat Tip: Preshit Deuskar and Abhishek Baxi). Digital Inspiration reported a few of days ago that PayPal was auto reversing all payments above $500, leaving users with a negative balance (in case the money has been transferred to a users bank account). This means that PayPal is willing to take a hit, if customers do not use their payment services for future transfers.

As we had mentioned earlier, the RBI typically takes a wait-and-watch approach. It first placed stringent restrictions on PayPal, and increased the limit. More might follow. We’ve seen parallels in mobile payments, where they initially launched with low payment limits, and relaxed them based on how the market responded.

The guidelines for receipt of payments via PayPal remain the same:

– Add a Permanent Account Number (PAN) and Purpose Code: By adding this information, you will continue to receive export-related payments into your PayPal account and your account will not be limited from receiving future payments.
– Add a bank account in India: This will help us to auto withdraw your PayPal balance out of your PayPal account and transfer your balance to your bank account in India. Note: If you don’t add a bank account in India to your PayPal account then your PayPal account will also be limited from receiving export-related payments.

Note that we wouldn’t find the exact notification that allows the increase in receiving limit to $3000 per month. More on this in a bit.

PayPal vs RBI:
PayPal Forces Auto Withdrawal On Indian Users
– PayPal Now Requires Purpose Code, PAN & Bank Account Details From Indian Users
– PayPal Issue: The RBI Notification Applicable To Online Payment Gateways
– PayPal Restricts Payments To India, Bars Purchases; Why They’re Right
– Updated: PayPal Resumes Electronic Payments To India; Can’t Be Re-Used For Making Payments
– PayPal Needs To Comply With RBI Regulations By April 30th, 2010
– PayPal Payments In India Will Require ‘Purpose Code’; Still No P2P
– PayPal To Resume India Payments By 3rd March; Export Code Needed
– Updated: eBay’s PayPal Disallows P2P Payments, Transfers To Local Banks