PayPal can return to India but without personal payments

Early last month, online payment service provider PayPal had stopped transactions in India and also reversed some fund transfers to personal accounts. The shutdown was because of the doubts that had arisen as to whether the personal payments at Pay Pal were remittances payment from expatriate Indian workers.

Now the Reserve Bank of India (RBI) has allowed PayPal to resume Indian bank withdrawals for Indian businesses that use PayPal to sell their goods or services abroad.

Personal payments into India will still remain suspended. Fahad Irani, the PayPal’s Asia Pacific boss said that the personal payments still remain switched off. RBI has said that it needs specific approvals to allow personal inward remittances to India.

The Indian Payment and Settlement Systems Act states that no person other than the RBI shall commence or operate a payment system, except with an authorization issued by the RBI under the provisions of the Act.

According to the rules set by the RBI, transactions for goods and services to Indian bank accounts will now be requiring a "purpose code" tag specifying the nature of the transaction.

PayPal has said that under new Indian laws these purpose codes are required for all cross-border transactions; depending on the amount of the withdrawal and purpose case, a bank may require additional documentary proof of the transaction, such as invoices and receipts.

The Indian Government has laid down these new laws because it fears that intermediaries like PayPal are used by freelancers who do not pay taxes for income generated abroad.