Paypal and RBI Issues – Whole Story

Paypal screws Indians again on January 28, 2011 by imposing restrictions on Indian Paypal users because they can’t adhere to the guidelines laid down by Reserve Bank of India (RBI). For the sake of a little recap, Paypal stopped personal payment to and from India in Feb ’10. They stopped Electronic Funds Transfer for Paypal Indian users in August ’10. And yet now they have imposed restrictions on how its Indian users work.

  • Users can’t receive more than US$500 as payments for export related goods and services.
    • In effect from March 1, 2011, you can’t receive payments for an amount exceeding US$500 per transaction. If you need to receive a bigger amount than US$500, then break it into multiples and do so.
  • Users will have to withdraw the money within 7 days of receiving it.
    • You can’t keep your money in Paypal account for more than 7 days. You will have to initiate a withdrawal before 7 days. There is no news on what will happen if you don’t, as of now.
  • Users can’t use their Paypal funds for making payments through Paypal.
    • You can’t use your available Paypal balance in paying for something. Any payments from the account will require a Credit Card attached to it which will be the only funding source. So if you want to use the money you already have in your account, you can’t. You will have to withdraw them on a horrible exchange rate (you lose money here) and then pay from your Credit Card which charges you a horrible exchange rate again (you again lose money here).

Link: Paypal Blog Notice

Who is to blame? Paypal or RBI?

I have seen several people, several news portal including reputed newspaper sites of India blaming RBI for their move but the truth is that RBI did the right thing and Paypal is playing their game here. I will explain.

According to Foreign Exchange Management Act, 1999 (FEMA Regulations), a business like Paypal is breaking the FEMA Act by operating like how it has been since its existence in Indian economy. And to keep things right and tight, RBI forced Paypal to abide by the rules or they won’t be able to operate here in India.

This helps RBI monitor payments which could be used for illegal activities like terrorism.

The catch here is that RBI didn’t force Paypal to put those restrictions on Indian users. Paypal put restrictions on user to make an escape out by limiting itself so that it will still comply with the RBI regulations.

According to RBI, Paypal can’t hold users money for more than 7 days as they will need to pay users interest on the money they have in their account. this means Paypal will have to pay interests to users which they are eating up by themselves. For every transaction of above US$500, Paypal will have to report RBI about it. Paypal could have agreed to RBI regulations so that they can still continue like they have been in the past but they want to keep their monopoly and let the users suffer. They can’t give away their freedom of working as an independent service and would do anything so as not to work as a Bank with regulations and guidelines laid down by RBI for every bank in India.

So, Paypal is the real culprit here. Blame them, boycott them and look for alternatives.

Thanks to Keith for his post on Techie Buzz for explaining the issue in detail & giving a real insight in the matter.

Ugly Truth

It may seem that this is the death of Paypal in India but certainly it won’t die. Here is why:

Lets break down the Paypal Indian users in 3 categories:

  • Small Diet (Users who deal with smaller payments like 40 USD or 50 USD and even less totalling a thousand dollar or much less than that)
  • Medium Diet (Users who deal with good payments like 500 USD or 700 USD totalling a few thousand dollars)
  • Large Diet (Users who deal with large payments totalling of several thousand dollars)

How does Paypal RBI Issue affect Users?

For Small Diet users, they will have less money which they need to withdraw by paying withdrawal fees. Right now they charge ? 50 (INR) for withdrawals less than ? 7000 (INR). They will have to pay this fees again and again for smaller transactions which can account for a large share in their actual profit. 500 USD transaction limit doesn’t both them as that’s a rare situation for them. Paypal can wave off the fees for withdrawals and then this group of users won’t have any problems in operating with Paypal accounts.

For Medium Diet users, they withdrawals would always be more than ? 7000 (INR) so they don’t have to pay any withdrawal fees but a 500 USD transaction can bother them to such extent but it can be workaround by breaking the payments into multiples of 500 USD. So this group of users don’t have any serious issues with Paypal but they would have to bear somewhat.

For Large Diet users it can only be a problem with breaking down the payment into multiples of 500 USD but since large projects are often done in several phases with payment after each phase, breaking down the payments into multiple is not that of a big issue as what it seems but yes it is annoying.

But users still can’t make direct payments

Yes, this will remain as an issue and something which everyone has to bear for now and don’t know till when.

But if you still look into details, then most of the transactions are for receiving payments. So this still leaves a large portion of users unaffected by it. To avoid any disagreements, I would like to quote myself as a user who uses Paypal largely for only receiving payments. Buying domains and paying hosting bills, they are something I can bear with extra costs. I agree that it can be a problem for small diet users but medium and large diets don’t care about it much. They will blast for a day or two and then get back to work. Like I was shocked when I got the email from Paypal but then I calm myself down and thought it just adds a little cost on my pocket and I can continue my work like how I have been.

So the ugly truth is Paypal won’t die in India. They would get a hit by their move but they are not brainless people, they will keep their service running somehow and I am sure I would have partially convinced on this fact if you understood what I tried to explain above.

What should you do?

Business should keep running. Extra costs should not stop worrying you. Try to avoid Paypal (I wish I could say to boycott Paypal) but that’s hard since its accepted worldwide but chose alternatives whenever wherever possible.

Accept Paypal when there is no other choice or what is best for your business. Who the hell cares for Paypal? Care for your business and how you can make the most out of it.

If you have any questions, feel free to ask in the comments section and I will be glad to help.


33 responses to “Paypal and RBI Issues – Whole Story”

  1. […] This post was mentioned on Twitter by Ashish Kumar and Ashish Kumar, Nicholas Francis. Nicholas Francis said: Paypal and RBI Issues – Whole Story Via @ashfame […]

  2. PP is not a culprit here. It’s you who you use them.not they used you and took away your money. All organization have to follow RBI guidelines.You(or anyone) save money in your PP account without disclosing it to RBI or paying tax for it. Would you create a new post to call yourself or anyone who does as a culprit???

    If you keep money in your account for a long time, PP is considered a bank and have to pay you with interest. PP does NOT want to do that and so they ask you to withdraw in 7 days.

    Hope this makes sense and whoever are wrongly led by the above post.

    1. You are clearly not an Indian. So FYI, Paypal require users to add a PAN card to their account with which Income Tax can trace our transactions. They are making money on the money which we have there and by giving us lower exchange rate during withdrawals. If my post didn’t make the real deal clear to you, I don’t think anything will. You can consider anyone the culprit. Your choice.

  3. RBI is the culprit.

    Last Feb, they brought Import-Export Code (IEC) and screwed electronic transactions.
    This Feb, they brought FEMA Act (1999) and screwed us even more.

    They have access to my PAN card, bank accounts, home address, credit/debit card, etc. Then why put 7 day withdrawal and $500 per max transaction limit?

    We love Paypal and no other international Payment Gateway offers electronic transactions to banks in India and free check withdrawals.

    1. You can’t read the post or what? Paypal was breaking the FEMA Act since long. RBI forced them to comply with it.

  4. Hey I cant blame paypal. Its the RBI who wants to take our economy back to the old days. They are just ****

    1. God! Can’t you just see what’s in the post? Paypal was violating the rules & RBI forced them to abide by it. Paypal would have continued like before if they were willing to make changes but they won’t let the opportunity of eating up people’s money go away and even pay them interest. Paypal refused to those changes and limit the usage instead so that they can make the same money they are making right now.

  5. its just lobby from credit card companies. CC companies throw money to these bloody RBI officials and they want to force the regulations now. RBI could have simply banned paypal but they not doing that too 😉 On the other hand paypal is acting full of rubbish with making nonsense restrictions instead of getting authorization from rbi

    1. First sensible comment! 😉

  6. well i am trading online forex so per transaction 500$ seems to less

    1. Yes, Its a lot less for Large Diet Users. And sending money would be very troublesome & will incur loss.

  7. Good for you Ashfame.

    Few stand up to the paid Paypal shill posters.

    1. My point is to care for your own business more than anything else.

  8. thumbs up to … Ashfame, chandan, and Indian economy which is now driving at a brisk pace wid d youthful thoughts and ideas coming in. PayPal is trying to play its monopoly game, RBI has just cut-off its hands and the better options are already there moneybookers is already in so PayPal and all such culprits, just be ready to witness an end of your own monopoly.

  9. Ashish, you need to see the bigger picture here. You are arguing that PayPal is at fault because it has tightened the scope of its service to comply with RBI regulations. That saves them costs of compliance and still maintain revenues/profits.

    PP is not a social service organisation where they must meet all regulations at their own costs. Being a private company, they need to take steps to protect themselves — every business would do that. What’s so wrong in that? Restricting service in order to comply with regulations is their legitimate business decision. If the customers don’t like it, they may not use PP. That’s simple market logic. If you hate PP because its a monopoly, anyone else can go and set up another money transfer service.

    Perhaps the fault is also not with RBI, they are only doing their job of implementing FEMA. It is FEMA that is not in line with this new Internet era. This is an era of speed and impatience. We all now want instant transactions. No one has time for filling up lengthy paper forms in triplicate, standing in the queues for 10 approvals and following up for their files in govt babus’ offices. These regulations are coming in the way of life and business in the name of protecting against terrorism and crime. What good is a protection when that itself hurts more than the criminals?

    Therefore, it is neither PP nor RBI who is at fault. It is FEMA that needs to be looked into. India is not the only country who is dealing with terrorism or crime. May be India should look at what other countries are doing and reformulate its own regulations.

    1. Hi Ankur,

      I totally agree with your point, after all its business but if people suffering are to blame someone, then its Paypal & not RBI in any case.
      If they don’t bother to blame anyone, its totally fine with me. No one is at fault. RBI safeguarded interests of the country and Paypal will safeguard interests of their business.

      Thanks for commenting! 🙂

  10. well RBI+Paypal = tax+f1ck you bloggers

    1. Well yes, somewhat!

  11. well.. i’m small diet user… My paypal account balance always remain less than 50$. I have noticed that only small diet users is effecting much in fight between RBI and PP. If i withdraw my money from paypal now.. I will lose my profit. so i decided not to withdraw until it reach more than $50. now its more than 7 days after that regulation took effect. Paypal is not saying what they will do if i don’t withdraw within 7 days. Can u tell me what should i do now? withdraw or not? Its 24th march and my little amount 🙂 still on paypal.

    1. Yes! Paypal is fooling RBI. What’s up with $50? You should withdraw 7000 INR for free withdrawal. If you withdraw less than that, there is a fee of 50 INR.
      And who knows what could go wrong (I mean Paypal gets things right), so its better to withdraw when you feel like. See if 50INR is worth the risk for you?

  12. well… I just wants to know what they will do to my money in paypal after 7 days? I have read somewhere that they will not allow me to widthdraw after that period and we should take government affirmation for withdrawal… but it sounds like fake news.

    1. There is no news of what will happen to the money in such a case.

  13. Most users were blaming RBI without knowing the actual fact. PayPal always sucks! not only for Indian users, most of its users have had some or the other wrong with PayPal’s services.

    1. Right! Users will blame them. And they are only concerned with keeping their business running.

  14. will paypal give out my personal information to rbi on the money being recieved in my paypal account or they can’t? like i trade fx which has been banned!

    1. I think its more of like RBI can get the details if they want, when they want and not Paypal reports every transaction to them. And if you are doing something which is banned, then you can attract heat.

  15. see…

    get your paypal verified with bank….put ur pan card details…

    also create a purpose code there in PP…

    now ur ac will be verified…
    no worries now… u can keep the money more than 7 days too…

    see this is the latest post & i m not fake here !!! i m an indian also…

    i take approx 800-900 usd from paypal each month… no worries break it in 2 parts if the money is large or keep it there…

    lol…now enjoy !!!


  16. hey i forgot to mention…

    every time you need money, create an invoice & you can get money from anywhere !!!

    also choose freelance journalism as your service category!!!


  17. After all these problems with PP – I have made up my mind to use Moneybookers from now on.

  18. chattarjee Avatar

    1. Nobody’s a culprit here. Indian moonlighters – stop being babies. Financial protocols and legal provisions about forex are badly needed, for several global socio-eco reasons. They have all along been there. In case of PP – they have just been implemented more cautiously. RBI has done a great job reigning in a giant like PP. PP has done great favor by accepting the RBI guidelines to facilitate online freelancers from India.

    2. The limit has just been raised to USD 3000 per transaction.

    3. Comfortably leave your money for unlimited period at PayPal – nothing happens. Withdraw at convenience. No one can go on scrutinizing every a/c. In near future PP may enable software changes to send alerts to customers having money left for more than 7 days, if RBI persists and can somehow force them into doing that, etc. But for now, no worries. Try it out…

    4. The only issue is – you cannot use your PP fund for buying things online anymore. But think about it – using PP USD to buy online was illegal right from the beginning anyway. The phenomenon just came to surface – since the volume has grown a lot in the past 4-5 years, and RBI had to implement the same restarint that applies to every Indian about using forex. So – get used to it.

    Get used to the changes – no big deal. That summarizes it 🙂

    1. Agree! About #3, Paypal auto withdraws the amount on almost a daily basis now.

  19. How does PayPal function for Non-profit organization in India to receive money from every where?

  20. Upset user Avatar
    Upset user


    I recieved a mail from my bank saying I can not transact in foreign currency both in domestic and international market. That means i cant use paypal now?
    What is the alternate for making payments through paypal?