PayPal faces new restrictions in India

The new measures could hurt the company’s business in the country

PayPal has introduced new rules for its customers in India, including a limit on the value of each export-related receipt to US$500.

The online payment service said on Friday on its blog that from March 1, balances and future payments into a customer’s PayPal account may not be used to buy goods or services, and must be transferred to the customer’s bank account in India within seven days from the receipt of confirmation from the buyer in respect to goods or services.

Export-related payments for goods and services into a PayPal account may not exceed $500 per transaction, it added.

PayPal said it was complying with new requirements from India’s central bank, Reserve Bank of India (RBI), for governing the processing and settlement of export-related receipts through online payment gateways.

The Indian government is worried that intermediaries like PayPal are being used by exporters in violation of the country's foreign exchange and income tax rules.

By making it compulsory for exporters to transfer payments to accounts in Indian banks within a specified time frame, the RBI hopes to better monitor the flow of funds into India, and also ensure that tax is paid on the income, analysts said.

Restricting the value of each transaction to $500 is however likely to be an inconvenience for Indian exporters and their business partners abroad who use PayPal. For purchases or payments above this transaction value to Indian merchants, global customers will have to use an alternative payment method, PayPal said in its blog post on Friday.

In a circular to foreign exchange dealer banks in India on Nov. 16, RBI said that a few online payment gateway service providers (OPGSPs) have not only facilitated conclusion of transactions but also allowed exporters to retain the export proceeds abroad without repatriation resulting in violation of the provisions of India’s foreign exchange rules.

Acknowledging the importance of the services provided by the OPGSPs to exporters, particularly in facilitating small value export transactions, it has been considered necessary to issue a set of guidelines to cover such e-commerce arrangements, RBI added.

RBI was not available for comment on Saturday.

PayPal has previously come up against restrictions from the RBI, which led it to suspend personal payments into India early last year. Personal payments into India will continue to be suspended, as the RBI told PayPal that it needs specific approvals to allow personal inward remittances to India, PayPal said in February.

PayPal does not have authorization in India to provide cross-border money transfers, a spokeswoman for the RBI said at the time. PayPal needs authorization to operate a cross-border money transfer service, under the country's Payment and Settlement Systems Act, 2007, and it does not have it, she added.

PayPal is still not included in a list of payment system operators authorized under the Act, that was released by RBI on Jan. 18.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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