February of 2011, Paypal announced that Paypal users in India will not be allowed to a)receive more than $500 in your Paypal account and b) keep money in Paypal balance for more than 7 days.
“Starting 1 March, 2011, PayPal customers in India will not be able to keep money in their PayPal account balance. Instead, all money received into a PayPal account must be transferred to a customer’s India bank account within 7 days from the receipt of confirmation from the buyer in respect of the good or services. This change is to ensure that we continue to comply with the RBI Guidelines.”
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;
Paypal also announced that Paypal users in India will not be able to transact using the Paypal account balance (i.e. you cannot purchase products/services from the money in your account). While this wasn’t implemented earlier (was working fine till June 10th), we noticed (today) that Paypal has implemented the rule.
Here is screenshot of payment error we encountered while making a purchase using Paypal account.
So in essence, your Paypal account is a temporary wallet for you to receive money (less than $500 USD) and you MUST transfer the money to your bank account within 7 days (note that you cannot use it to buy any other product/service).
» R.I.P Paypal.
Also see: A look at Paypal alternatives in India?