Using Paypal in India and Verification Process

I had wanted to have a paypal account for a long time. I even created my account some years back – but deleted it later, as I was not in a position to verify my account. The reason is that Paypal would only allow the use of Credit Card for verification. I even wrote to their support whether Debit Card (Visa/Mastercard) issued by any bank of India could be used – and interestingly, the reply was that it could be used for verification. Despite of this, Paypal would give the error that the Debit card was being rejected by Bank. After much searching for the explanation, I surmised that most probably it was due to the fact that Paypal was trying to deduct in USD, whereby the Debit Card linked to Bank Account was authorised only for INR transaction – even if the debit card would speak of its being ‘international’. The Debit card being branded international perhaps means, that it could be used in Nepal and Bhutan!

This time round, due to certain reasons I had to take a relook at Paypal system. I was pleasantly surprised that Paypal now provided for verification through bank account, and also provided for transaction in INR.

I tried with the Debit Card, but again the same error would come. So I finally used the Bank Account route for verification.

In this, one has to put the details of ones bank account. One should be sure that the bank branch has IFSC code. One need not have internet banking facility activated for oneself for using such verification process.

Paypal transfers two small amount of INR into your account through NEFT. If that enters your account it is assumed that you are genuine person.

Once the amount is credited to your account, one has to put those two amount in the verification page of Paypal. If the amount is correct, then one is verified instantly.

Also, one has to disclose ones Income Tax PAN number. That means that the transactions are also recorded for Income Tax purposes. I am not sure if disclosing PAN is optional – as I have PAN, and I entered it in the Paypal account – and did not encounter any problem.

Flip side of Paypal (as on date): For India, Paypal currently does not allow personal payments (due to compliance to RBI directive). So everything is either receipt or expense – it cannot be transfer of money.(as per RBI, Paypal is currently not authorised to carry transfer transactions under Payment and Settlement Systems Act, 2008). So, in this instance, I had to activate my account to receive a refund. But the Paypal system would count it as a revenue receipt – and deducted its fees of 3.9% + USD 0.30.

Images below:

1) The account is unverified:

The Account is unverified

The Account is unverified

2) Different Verification Options offered by Paypal

Different Verification Options

Different Verification Options

3) When Bank account is added to Paypal account

After adding the Bank Account

After adding the Bank Account

4) When Paypal transfer two small amounts to your account, then there is the following screen that is visible. When the amount gets credited to your bank account, one has to enter the value of two deposit in the boxes. These are small amounts and have to be entered in the format x.xx

After adding the Bank Account

After adding the Bank Account

5) If the amount matches, the account is verified instantly.

Paypal account is verified

Paypal account is verified

Update July 2010: Received an email from Paypal with the message:

In accordance with regulatory instructions, we would like to notify you about a change in our withdrawal functionality in India starting on August 1, 2010. At present you can request for either an electronic or cheque withdrawal of funds from your PayPal account if you are an India user.

From July 29, 2010 onwards, you will only be able to request for a cheque withdrawal of funds from your PayPal account.

While we are working hard to restore the electronic withdrawal service, in the meantime, we are bringing this matter to your attention so that you can plan your future withdrawal activities accordingly.

Update Jan 2011: Received the following notification from Paypal:

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.

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66 Responses to Using Paypal in India and Verification Process

  1. This paypal thing is crap.
    Use payza

  2. Hi. I my name Chinna(Surname) Naresh Reddy . Same name is there in PANCARD and Bank account. I added PANCARD but not Bank account to paypal but i opened my Paypal account with name C Reddy. Can this be a problem? Can i add bank details and make funds transfer?

    • There are rules for opening Paypal. eg if you are opening business a/c for frequent transfers, it should not be in personal name etc. So check that out.

      Logically – in your situation, for normal occasional transfers it should not be a problem, but cannot speak of software quirks and how they are configured by Paypal for validation purposes.

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