PayPal Payment Problem in India Again, Alternatives and Solution

PayPal and Indian government has created a new problem to Indian users again. Freelances and bloggers are finding new alternatives and solution to the PayPal payment problem in India.

Starting from 1st March 2011 you cannot use your PayPal earnings to shop or get service online. You should transfer all the money you receive in PayPal to your local bank account within 7 days of payment. The two latest rules implemented by PayPal as said by RBI are -

• All users have to transfer any money in their PayPal accounts to their own respective bank accounts within seven days of completion of a transaction.
• All transactions have to be under $500.

Some of the answers by RBI expert -

Q: So PayPal says that they cannot keep the money in their account for more than 7 days? Why is this happening.
RBI-expert: Because if PayPal keeps the money with them, they have to be regulated as a bank (and any institution that does it have to do the same) and PayPal does not want that to happen. Any entity which provides on-demand payments have to be regulated as a bank as per RBI rules, this is mandated because if they hold money for more than 7 days they have to provide users with interest.

Q: I do understand that they want to make money, but what is about $500 transaction limit.
RBI-expert: Well, once again this is a government and RBI mandated thing. 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.

RBI has implemented these rules because many of the Freelancers and bloggers in India are not paying the tax for their online income and it gets un-noticed when it comes to PayPal transactions. For example if a freelancer earns $1000 monthly and gets paid by PayPal and spends it online for shopping and services, then RBI will not have any clue about his online earnings, so they have applied strict rules. So from now if you want to pay using PayPal then you should use your credit card only. Now PayPal users are finding the best alternatives to PayPal as many bloggers and freelancers have not got credit card.