PayPal changes terms of service in compliance of RBI guidelines

PayPal has had to change their usage policies as RBI guidelines do not allow virtual wallets – the service can be misused to not pay one’s taxes. However, the new rules could also affect exporters working online as the transaction limit is now set at $500.

e4m by exchange4media Staff
Updated: Feb 1, 2011 8:44 AM
PayPal changes terms of service in compliance of RBI guidelines

If you’re an Indian PayPal user, then you’ve probably already read the email we’ve reproduced below – from March 1, the company will be changing their terms of service in two ways that will probably affect the way you’ve been using them. If you’ve been using PayPal to get payments for exporting goods, then you can’t use it for a transaction exceeding $500 anymore. The other change is that you cannot keep any balance in your PayPal account from March, which is likely to affect students, freelancers and others more than anyone else.


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.

Why has the RBI made these demands on PayPal? The RBI has a rule against allowing services to function as virtual wallets – where you can put money in and take it out without having to bank it in India, denying the government its taxes. While that sounds really great to most of us, the fact is that this is something that needs to be looked at in detail by our policymakers, and not with individual corporations.

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