PayPal India & RBI for Stricter Money Transfer Regulations

A few weeks after PayPal resumed the money transfer operations to India (and enforcing some compliance via PAN Number & reason disclosure for PayPal money transfers), they have gone even stricter now! Basically, the RBI (Reserve Bank of India) has enforced this new compliance policy on PayPal India whereby all money received via exports need to be withdrawn to respective Indian Bank accounts of the individuals within 30 days of receipt of the same.

Exports, in this context, is anything like money received for online services, blog income, sale of products on eBay etc. Basically what it means is that you have to disclose and withdraw your income as and when it is received and you have to swipe your credit card for any new purchases. The details of the new RBI regulations as listed below:

(You might have already received this communication from PayPal India)

  • Any proceeds or earnings received into your PayPal account from the export of goods and services should be withdrawn to your bank account within 30 days.
  • While making the withdrawal please make sure you select the purpose code that best fits your business (Note: This was already in place)
  • Any proceeds or earnings received into your PayPal account from the export of goods and services may only be withdrawn to your bank account in India. This received amount cannot be reused for making purchases.
  • If you would like to make purchases on any website that accepts PayPal, you can continue to use any credit card issued by a bank in India.

In brief, whatever you earn online cannot be ‘recycled’ but withdraw immediately to your Bank account. If you want to use PayPal for paying your online purchases or services consumed, but you have to use your credit card. Basically, the government can now not only track how much money you made, but also make sure that you don’t keep that forever in your PayPal account and consume later at your convenience. They are quite smart, aren’t they? The other advantage for the RBI is that the money received in USDs or other foreign currencies will be converted into Indian Rupees at much the same exchange rate as it was received. This will certainly bring in a lot more stability to the Forex system though it can be hard on the online freelancers. For the income tax department, it is going to be as good as TDS (Tax Deducted at Source) and the entire online story works pretty well for them.

What does it mean for all of us?

As I mentioned in my last post on this topic, one needs to strictly pay taxes for what they earn. Henceforth, you will be frequently monitored for your online activities that make money. You will be in the RBI’s radar surveillance much more than those who make money in INR (e.g. Google AdSense income paid as Indian Rupee checks) because you are earning Forex sitting here in India.

In my opinion, all other money transfer services will also be brought under these rules as well. However, I am a little bit concerned about the compliance date for the current balance in PayPal India account. Not sure if there’s any date before which you have to withdraw it all. Any idea, folks?

Happy Money Making!


  1. Hi,
    My friend has told me his funds withdrawn from Paypal had been hold by RBI and only be released after he provides his PAN card and his business documents.
    Did he tell me the truth ?

  2. A new fact about Pay Pal :

    I applied for a charity account with Pay pal because its free and supported by vbulletin software for payment subscription, I have all the documents like NGO Registration certificate, Memorandum of Society, Society PAN card, and the Bank details , bank details were verified by the Pay Pal by depositing amount of Rs. 2 and 40 paisa, after submitting all the document as per said in their website and in their emails, they denied me for the account, just because they have no tie-up with India regarding charity account, what the hell is this, why the pay pal people should not mention at the time sign up process. I have wasted around 1000/- rs in doing fax to pay pal and after 4-5 days they denied.

    Don’t apply for a charity account with pay pal if you are living in India. Just wastage of time and money.

    • @Sonia, thanks for sharing this information. I didn’t know about this issue with charity a/cs.

    • Very much align with Sonia, PayPal is doing monopoly here, transaction fee while transfer amount to your bank……Huge.

      No other option available here…. ccavenue is too expensive.

  3. I online transfer Us doller from GT Bank Uk to Canara bank India transfer sucessfully but not credited in my account.GT Bank says RBI wants money to convert US Dollar to Indian money it is true

  4. I received a payment from of 50US$ on my paypal account.Now i cant transfer it to my bank account because it asks for some purpose code and none seems to match my purpose.How can I transfer this money or can use it. is US site which offers money to its members for points earn on their site.
    please help

  5. Hi Ajith

    I am writing Games reviews for some site and they would pay me through Paypal. I am new to Paypal thing and your site has clarifed a lot about it.

    BTW does Paypal or any other fund transfer site involve any hassels related to FEMA.

    • @Akshat, I am not aware of the FEMA rules. All that I myself do is to declare adn pay income tax for all the income that I receive for my online campaigns.

  6. After the RBI guidelines for PayPal, I was thinking of switching over to Alertpay. But I read somewhere above that AlertPay does not support transfer to Indian accounts or so. Can someone elaborate on this point?

  7. Hello guys , i need a help here . If anyone can help me how i can pay TAX of my earning , i mean what purpose i show when i open IT File … i withdraw about 4000$ approx each month via Paypal , my Purpose code is Export goods and services , Basically i sell virtual goods like CD keys , game keys also i do domain / VPS reselling and some SEO things and CPA things etc . So can anyone suggest me what i mention as a source of income to open a IT file , So that i can properly pay tax to IT of India .

    Please help me asap … i need to know it so much …

    • @Akash, your purpose code is good. Now, you can pay taxes based on the money credited to your bank account from PayPal. I usually file it as part of other income. By the way, you don’t need to wait till filing the returns to pay advance tax. You can remit it online to the NSDL a/c providing your PAN details, I think. If you wait till the time of return, you may end up paying some additional interest. Best thing is to pay 500 bucks and consult a tax practitioner. He may even suggest ways to save your taxes using the current tax laws

  8. paypal is a big scum bag on internet, they are ripping off people when they limit the account for 6 months and durning that period u cant take the money out neither u get any sort of interest thats how paypal does the business and not to forget their high fees , they are not only thiefs but they also have a bad currency exchange for dollors when its over 51 they are giving people 50 rs per dollar, i dont agree with paypal or rbi both are on the same track to ripp off people and yes its business for them and for us the only diffrence is they are ripping off people to support their business and we are doing business to support our families.

  9. Ajith Sir , can you please mail me your contact No. so i want to discuss with you about my problem in person . Cause i am pretty scared about paying Tax things , I want to pay all tax which i have to but really i am pretty confused what i provide my source of income as i mentioned you in above my source of income originally .

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