PayPal India conforms to Government regulations

Looks like the recent PayPal India chaos – whereby the personal account holders couldn’t withdraw money to Indian banks – has come to an end! When I tried to withdraw money to my bank account last week, it asked me to declare a purpose for the proceeds received through PayPal (See the screenshot below).

This is definitely a great move. As I have always maintained, the online income earners need to comply to government rules and regulations while making money. In principle they are bringing in foreign exchange (Forex) to India that’s not accounted for and sometimes not taxed.

New requirements by PayPal India

The purpose of withdrawal of money – or in other words source paypal withdrawal purposeof income – needs to be declared only when you withdraw funds. The following are the reasons available as options now and they have a beautiful description of the same in a help screen. Bloggers are supposed to choose Freelance Journalism as per the description given there in.

In addition, as of yesterday each PayPal India account holder needs to provide the following information to keep your PayPal account active:

1. Your Mobile phone number
2. Your PAN Number

At the moment, they seem to allow skipping this screen but I am sure this will be made mandatory soon. The mobile number will be used for clarification by banks as how the money was earned and the Income Tax PAN (Personal Account Number) id will be used to track your income records and financial transactions.

Paypal India PAN Mobile number
[There is a bug in the screen that asked for the PAN number. Last night I entered my PAN number but it did not accept it stating that the format is not correct. Looks like they are still testing or fixing it]

What does it mean to bloggers and Internet Marketers in India?

Well, many student bloggers may not have a PAN number yet and some of them who are not adults yet will not be entitled to have one. In principle they cannot use PayPal in the near future.

Those who are already having a PAN number, can now conform to RBI regulations and be decent Indian citizens to pay taxes for everything that they earn. I know a lot of them won’t like it but that’s what you are expected to do. Evading taxes won’t help you or the country!

If you think that you can now switch to other online payment mechanisms, even they will be forced to conform to RBI rules soon enough. Moreover, I feel that all those online forex trading sites will be monitored for their illegal activities from the Indian soil (I hear have some of them have customer relationship offices in India)

In principle, be decent and pay taxes for whatever you earn online!

I am Happy!

Being somebody who pay income tax for each and every rupee earned – via employment salary, online income, bank interest, capital gains etc – I am really happy with this move by RBI. Such norms and rules are required to make our financial system stronger and well regulated which is one of the reasons why the Indian economy didn’t quite have a recession while others suffered! This will also help all of us to become good netizens!

Happy Money Making and Don’t forget to Pay your Taxes!

Comments

  1. Is there an age limit in getting a PAN Card? I have heard that a 3 year old kid has a PAN card and she is the youngest in India.

    I have one anyway, took it just 3 months ago, yay :)

    P.S: I am not happy with the move, I haven’t paid tax yet, though the last year I was supposed to (around the border) 😀

  2. I was able to add PAN in first attempt, However, I thought that its just me who is entering PAN as there was no noise about it on Blogosphere. Moreover, My account was limited so, I thought may be PayPal is getting strict with just me.

    Overall, I am happy with all the steps taken. You didn’t include that Now Indian user can be verified by confirming Bank account. http://www.blogsolute.com/verify-paypal-bank-account-india/6494/

    About Taxes, me too never paid a penny eventhough I crossed the limit :) But from now on, everything will be tracked so no way to escape.

    • Rohit, I am still unable to update this and PayPal says they have some issues on that page. I have raised a support ticket. As for the taxes, it’s always good to pay what we owe :)

  3. Its ok, can accept these conditions.

    • Good :) Anyhow, there won’t be other alternatives as all money transfer companies will have to conform to RBI. As online marketers and money makers, we need to depend on them.

  4. Oops, I cant enter my PAN, and now the skip link is not there. I am stuck. lol

  5. Wynne :

    Looks great that Paypal India is finally coming back online.

  6. Rajeel :

    It’s not at all possible for student bloggers like me, who doesn’t have PAN card. We will drink a lot of water if they don’t change these regulations. ……..

  7. I withdrew my PayPal money earned during Financial year 2009-10 in May 2010. So, am i supposed to pay tax on that money right now(i mean before July 31st 2010) or during the assessment of this financial year(2010-11), that is, next year.

    Frankly, if i didn’t receive any money in the bank, should i be required to pay tax on that ? I withdrew the money this year (may 2010) so logically, i should pay tax on that money during filing return next year. Please clear my doubt.

  8. Amdy :

    Its a good move, and its ALWAYS better to be VERY clear in your online dealings because the government can very easily track your online banking activity, unlike offline methods.

    Hence, Go paypal! Very well done, and please do one more thing, support Indian Rupee!! :)

    Amdy

  9. ok , here is a question. What if i dont transfer the funds , and already submitted my PAN details . Am I subject to Taxes on existing Paypal Funds that are not transfered to my bank account …

    Sourish

  10. PARUL AGGARWAL :

    Hi

    I just wanted to know if there is a maximum limit to the amount that can be withdrawn to the Indian bank….Is it that after a certain amount, the Indian bank will ask me to provide proof of the source of income? I’m a freelancer writer. I don’t generate invoices and all. I just get the money when I write ……So, if I m asked to provide a proof, what should I provide…????

    • As long as you provide the purpose (probably Freelance Journalism in your case), there’s no issue to any limit. However, above 50K you might get a call from bank to provide a purpose again. Probably the PayPal purpose is not transferred to their systems.

  11. Jagdish borkar :

    Is IEC code required to be obtained for dealing through paypal? Does selling and buying through paypal and rendering services like writing, graphics design, software, data entry through the internet constitute export import business or is it just freelancing and self employment? Is Gumasta licence required to be obtained? Again, are there any FEMA declarations to be made, since, their regulations state that all the exports of software( a wide defn is given in the FEMA Act and it includes sending graphics, writings etc) must be declared to RBI. Can some light be thrown on this topic, so that freelancers can work in peace by complying with these legalities. Thanks very much.

    • @Jagdish, I am not an expert in this matter – probably some our readers may be. In your case of running a business abroad by consuming services in India, there may be some regulations.

      I was more writing about the need for freelancers in India to declare the purpose related to foreign currency income. That’s what your hired freelancers would do. Not sure, what you as a businessman should be conforming to.

      In my undrestanding, if you are sitting abroad and consuming services from

      • Jagdish borkar :

        Thanks very much for your reply, but my case is as follows:

        I am a citizen of India. I am not a foreign resident but I reside in India. Just like the other freelancers, I want to join odesk, etc and provide services such as writing, graphics design etc. to the foreigners.

        In that case are there any regulations like obtaining the IEC code or Fema declarations etc.? Or is it sufficient to only enter the purpose code and pan card no. in paypal and withdraw the money to local bank account in India?

        • If you are a citizen of India, as I understand, there’s no issue as long as you provide individual services and get paid for the same. All that you need to provide is the purpose code. However, I am not sure the case when you ‘own’ a registered company in India and receive forex in its name.

  12. Jagdish borkar :

    Thanks very much for your reply. I am happy to learn that there is no requirement of IEC code or FEMA declaration of software export in case of individuals conducting freelancing from India only through the internet. However, to make things clear I am trying to get confirmation, regarding both individual and registered businesses, from RBI itself. I would be happy to post the results on this blog when I receive their replies.
    Thanks Jagdish

  13. Josh :

    Hi,

    I am a freelancer using Odesk and receiving payments from them through Paypal to my bank account.

    The credit to my bank account is in INR only. The conversion of $ received from my clients into INR is taking care by Paypal, as it seems.

    Is this construed as Foreign income earned by me?
    Can i show the amount received in my bank as other income in my tax return and can deduct the expenses for internet, telephone etc.?

    Are the services providing by me to my foreign clients through freelance websites are taxable under service tax/VAT in India?

    Do i need to include service tax while raising invoices to my clients through paypal for receiving amounts from them?

    Where can i get answers for all the above questions.

    Appreciate, if any one can help me in this regard.

    • Josh,
      I am not sure about the service tax rules. However, you have to pay income tax to the money received to your bank as no TDS is deducted on such income. This holds good regarldess of whether you receive money in USD or INR.

  14. amit :

    Same question i have, does paypal income is foreign income, because we get money only in INR, so if i am working for client outside india will i get the service tax exemption because export of services are service tax free…

  15. @Josh & others,

    1. According to Service Tax Rules, “export of service” is NOT taxable. Means, if you reside in India and provide service to outside of India then your “Service Tax” is not applicable.

    2. If you reside in India and provide service within India then your “Service” is taxable (12% + 2%cess on tax)

    3. If you are a software exporter (or any software service provider) where in case your total software export reaches above $25000 per year then you must Register yourself in STPI and get an “export code”.
    this applies to both freelancer or a company.

    4.Any income you earn by online/offline method is taxable. But Your total income is not taxable. The income remains after several expenses is called “taxable income”.
    For example, according to “Section 80C” of income tax, below expences/investments are dont fall in taxable income
    1.Insurance premiums
    2.Home Loan EMIs,
    3.Your Kids Tution Fee,
    4.NSC & Mutual Funds
    5.etc..

    (All above not exceeding 1,00,000)

    1.Health related expences (upto 15,000)

    2. House Rent (upto 25,000)

    3. Food expenses etc..

    After deducting all above expenses, still your income is above 2Lac per year then you have to pay income tax for your “taxable income”

    Before paying tax contact a tax-expert in your area and then submit your returs/forms.

    5. If you sell/ship any physical goods outside India (example using eBay etc..)
    then you must take all legal steps contacting an expert (Lawyers, Auditors)
    as a precaution before your business.

    6. all Online Workers (Freelancers, Data Entry Operators, Affliates, Resellers, Ad Posters, Website Owners, Bloggers) are bound to income tax rules.

    7. Take Your own time to calculate your income tax

    8. Last but not least…,
    Indian Government is really a worst government. They give tax exemptions to Big corporate players, but they don’t want to leave “Uprising online youths and Entrepreneurs” mostly from middle class. This is INDIA..!!!

  16. Tax Benefits To Self-Employed

    All your work/business related expenses can be claimed as business expenses. (Vouchers/bills would be required to support expenses) A variety of expenses including rent or home office expense, travel costs, communication costs (telephone, internet), business meetings, supplies and utilities can be claimed as expenses.
    Claim vehicle costs or mileage allowances.
    Claim home costs if you work from home.
    Normal deductions are allowed for self-employed individuals .
    Section 80C allows investments in PPF (Public Provident Fund), insurance /unit linked insurance plans, pension plans, ELSS (equity linked savings scheme), NSC (National Savings Certificate), infrastructure bonds, FDs (fixed deposits ) apart from home loan principal repayment.
    Tuition fees for your child’s education can also be claimed. Section 80D provides deduction for medical insurance premiums of oneself and family.
    If you are staying in a rented home you can claim the rent paid as deduction u/s 80GG, based on certain conditions. If you buy a house, you can claim a deduction on interest paid.
    The premiums paid towards life and health policies will provide for tax breaks u/s 80C and 80D.

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