RBI Instruct Indian Freelancer’s not to use PayPal Balance

January 2010 It was PayPal and this January it was Payoneer who had issues with Indian Banking system. Now RBI (Reserve Bank of India) raises yet another issue with PayPal.

I got this email from PayPal today morning

Dear Shabbir Bhimani,

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.

Sincerely,

The PayPal Team

In short it means now you cannot use PayPal balance for anything but to transfer it to your bank account and then use your bank cards to pay. This means you loose quite a lot on the Forex.

Check out the FAQ’s.

I see the major Impact on –

  • Cannot use your PayPal balance to buy anything and so your Domains and hosting payments should be done through Credit Cards now instead of using PayPal. This means you should be choosing your host who accepts non-PayPal payments because paying through a credit card using PayPal means lot more charges.
  • For all small payments you cannot use PayPal and if you use them you may need to withdraw the funds within 7 days of receiving payment. This means you pay withdrawal fees of 50 Rs for each withdrawal of below 7000 INR. Again Minimum withdrawal amount is $10 in PayPal and it is unclear how they will deal with it.
  • I am not sure why PayPal restricted for $500 but for export RBI says it is $25000. See this
  • As an individual you cannot pay any other Freelancer outside India for doing your work and if you want to be doing you have to pay the Forex fees of paying through your credit card using PayPal.

What are your thoughts on the same.

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Comments

  1. says

    Paypal should somehow start changing their policy, if they want to get some good revenue then they should allow rules like what you have stated above. That is not being fair to Indians at all, they are one of the most resourceful people that I know. :)

  2. says

    Hey Shabbir, feel sorry to know that, Its not even fair why a minimum amount of money to be withdrawn should be $10, and not less than that.what if you have no other means and you got $9 i don’t think paypal is helping us.

  3. Mukesh says

    Sorry Sabirsir, I modify my question Can I use paypal to make purchase online If i have debit card linked with Paypal…. if yes than what is the maximum purchase limit using debit card?

  4. Paypalsucks says

    Good scope to have a New company which gives some respect to RBI and our government. Paypal think that they are the king and are NOT WILLING TO OBEY THE RULES and finding silly and UNPROFESSIONAL WAY to avoid the RBI guidelines.. IN the long run we can see paypal is going to the bottom…

    So Ditch paypal and encourage alternatives.. paypal didnt stay long with their DICTATORSHIP

  5. says

    I have following quarries
    1) If i don’t transfer my money from pay pal within 7 days what will happen to my funds.
    2) what if I had to pay commission on my earnings to my service provider through pay pal only what is a alternative can i add funds in pay pal through credit card and then pay.
    please reply
    thanks

    • says

      Rishi,

      1. PayPal can do anything like reverse or forcibly transfer. Depends on PayPal but it would be wise to transfer it out.
      2. You cannot use your PayPal funds but can use CC to pay through PayPal.

  6. says

    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.

  7. says

    The general perception here that RBI is the villain is not correct. RBI has separate set of Regulations for Financial Institutions which act as Banks, that is, keeping a user’s money. RBI does not allow operation of Money Wallets in India. Wallet365, an online wallet from Times Group was similarly treated by RBI back in 2006.

    Paypal was acting as an online Wallet, keeping people’s money, not providing interest like other financial institutions, allowing people to evade personal income tax by making online payments and charging much higher rates and providing less exchange value on transfers. By Imposing the 7 day restriction, Paypal will essentially only act as a money transferring service and not a Wallet.

    Moreover it seems the 500$ Cap is one introduced by Paypal and not by RBI. All financial entities who bring cash flow to India have to report high value transactions to the RBI. PayPal is basically just working around RBI’s rules to prevent being regulated by RBI. If Paypal truly wanted to give customer service, they could register as a financial institution in India, be subject to Indian regulations and allow people to receive any amount of money for any length of time.

    • says

      I expected that. Indian Government only wants the money by Indian’s to come to India as soon as possible so that the outflow of USD from the Indian market does not make the USD price to raise substantially. Few billion USD already out of India only in the month of Jan 2011.

      PayPal is trying rule such that it can function without any regulations.

      • Bind says

        Shabbir,
        Do you know any reliable Indian web host providers (shared hosting) who can provide the same service as being provided by their American counterparts ?

        Thanks
        Bind

          • Bind says

            Hi Shabbir,
            Bluehost was my first choice too. Unfortunately, I do not have a credit card. Do they accept Indian debit cards ? Or can you please tell me any alternative ways of paying bluehost ?

            Thanks
            Bind

  8. Vishal says

    Will it be applicable to Mass pay also ? As they are not For goods or services ? I think Mass pay can be used even after march ?

    • says

      I don’t think Chandan PayPal will (and can) do that.

      I am not sure why PayPal restricts to $500 because all RBI docs I have searched related to exports and there is by no means anything where I can find any upper limit to the amount of money you can receive as export.

      Infosys for example receives billions of USD and this $500 is something not done by RBI but this may be the effect of US taking steps towards outsource and nothing more.

      RBI is not involved in putting a max limit and I think PayPal is hiding this behind other legal implementations by RBI

  9. says

    Looks another great problem for Indians!
    :(
    Now my question is that if some one receives money less than $10 and what will happen in case of him? Coz minimum amount can be withdrawn to Indian bank a/c is $10!! What u think about this?

    • says

      I am sure micro payments is no more an option for Indians.

      There are lot of questions and one of my question is what happens to payment of more than $500.

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