Just received this mail from PayPal. Apparently RBI has caused more pain to Indian PayPal users. Here is an excerpt of the mail: -

As part of our commitment to provide a high level of customer service, we would like to give you a 30-day advance notice on changes to our user agreement for India.

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.

We seek your understanding as we continue to employ our best efforts to comply with the RBI Guidelines in a timely manner.

We regret any inconvenience caused to you and hope the advance notice will enable you to plan your future use of our services accordingly. For further information, click here.

If you have any questions, please contact PayPal customer support by logging into your PayPal account and clicking on ‘contact us’ at the bottom of the page. We sincerely thank you for your patience and continued support.

Sincerely,

The PayPal Team

So, what it means is that the PayPal users from India are plain screwed, in simplest words. Some effects of these new regulations:

• You cannot receive funds more than $500 in a single transaction.
• You cannot keep money as PayPal balance in your PayPal account. You must transfer any money received, to your bank account within 7 days.
• If you accept PayPal as a payment gateway for your online business, then your customers have to link a Credit Card to their PayPal account to send you funds.
• You cannot pay for domains, hostings or any other goods or services from your PayPal balance. You must link a Credit Card to do so.

About time to search for a PayPal alternative.

Source: PayPal India Notification