PayPal India to Auto-Reverse all $500+ Payments

Some more problems are in store for PayPal users in India.

The RBI, earlier this year, had directed PayPal to not accept any transactions that exceeded $500 in value. PayPal communicated the same to all its users in India but never really enforced that rule and thus, PayPal account holders could continue to receive payments exceeding that limit without any issues.

The "grace" period is however over.

Image Source

PayPal, in order to strictly comply the RBI guidelines, will now decline (auto-reverse) all transactions in future that exceed $500 in value. The more troubling part is that they'll also reverse all the previous payments you may have received in your account in or after March 2011 that exceeded the said amount.

This puts everything in a mess and let me explain that with one quick example. Say Mr X sent you a payment of $1000 in August. The transaction was successful and, to comply with another RBI guideline, you immediately transferred that money to your local bank account in India. Your effective PayPal balance was $0.

In October, PayPal suddenly decides to reverse that transaction and returns all the money to the sender X. As a result, the client got all his money back, the money you transferred earlier from PayPal is still in your local bank account but now you also have a negative PayPal balance at -$1000.

I asked a PayPal representative how they plan to charge users to clear the negative balance and she suggested that any payments received in the future in your account maybe used for that purpose. PayPal, at this time, doesn't plan to charge your credit card or your bank for resolving the negative balance.

Meanwhile, you still need to figure out an alternate way to receive the money from your client that PayPal returned him earlier this month. Wire transfer or the printed cheque sent via snail mail are the only possible solutions. 

Thanks to Amit Agarwal( Original Author )