Paypal withdrawals to Banks in India – Major Issue

Auro Infotech handles many clients outside India and gets tax deductions for all Foreign Income, just like any other company from India that works with clients outside India.

In order to get these deductions, Auro Infotech will have to receive payments into its banks in foreign currency only.

Paypal is one of the payment gateways we use to receive payment from our clients. With Paypal’s feature to transfer money into banks in India, we used to withdraw from Paypal to our bank accounts as US Dollar and it was considered as foreign income.

After the recent changes announced by Paypal, the option to choose in USD or INR is removed and we have withdrawn two payments so far. We realized this week that the payment is coming in only as Indian Rupees, which will directly make us ineligible to get any tax deductions, as the payment is not considered by banks as foreign income, as it is received in Indian Rupees. This is a huge issue!

We are trying to work with Paypal support team and its executives to find a solution to this problem as it does make a big difference in the financials.

I spoke to an account representative at Paypal who did not have any clue that after the 29-Jul-2010 change made by Paypal stopping withdrawals to banks in India, they actually reinstated it again on 30-Jul-2010, but with the restriction I have mentioned above. He conveniently told me ‘No sir, we do not have any more updates on this change you are talking about. All that we know is that we stopped withdrawals to banks in India and we can only give cheques to you’. What a shame! A leading company does not even make sure its customer support representatives are up to date with the policies of the company!!!

Right after that I told him that I would like to speak to a person who knows about ‘Process related changes’ and I want to talk about the potential impact it is going to have on Paypal.

Since I realized that it might be better to give the Paypal folks a written documentation about this issue, I have sent them an email (contents pasted below). I really hope they realize this issue and find a solution.

If Paypal is unable to work with us and find a solution to this issue, our only other option will be to stop using paypal and use other gateways that will help the banks in India to recognise the payment as foreign income.

If any one else has come across this problem and has found a work around for this issue, we would love to hear from you about how you handled it. Please feel free to post your thoughts here on this.

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Hello Paypal Support team,

I would like to bring a potentially major issue with respect to the recent change made by Paypal to the withdrawal procedure from our online paypal account into our bank account in India.

Before the changes were made (ie before 29-Jul-2010), any withdrawal we many from our Paypal account to our bank account in India, it used to give us two options: to withdraw in USD or in INR.

We preferred using USD, as it will bring the foreign income into India in USD and hence our bank recognized it as a foreign income, and hence at the end of the financial year, our bank in India gave us the Foreign Income Remittance Certificate (FIRC), which is mandatory for us to file along with our taxes at the end of the financial year.

With this change (made after 29-Jul-2010), we noticed that Paypal does not give us the option of withdrawing the payments in USD anymore and automatically sends the payments only in INR. We also verified with our bank that the money in our bank account in India is received in Indian Rupee only. This automatically makes these payments ineligible for any consideration to FIRC.

In this situation, if Paypal is considered as a bank in India and will be able to give us the Foreign Income Remittance Certificate, then this problem is solved. I am not sure if Paypal is, in any case, please let me know your thoughts on this.

If the above case in not applicable (ie. Paypal cannot issue FIRCs), then I request Paypal to look into solving this situation. Until this is solved, we will not be able to use Paypal for any of our transactions and will wait to hear from you on your proposed solution on the same.

This same problem is going to come for any India based business trying to receive foreign income using Paypal as the gateway and if this issue is not resolved, it is just a matter of time before which they will stop using Paypal. Hence I believe it is in best interest for both Paypal and the Indian businesses for Paypal to find a quick solution to this problem.

I am available via email or on the phone to discuss this with you at any time.

Regards,
Administrator
Auro Infotech