PayPal Quietly Rolls Out Autowithdrawl Of Funds Only For Indian Users

If you are based in India and have been using PayPal for quite some time, you might be aware of the new PayPal law for Indian users – brought in effect from March 1st 2011.

According to the rule:

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.

2. Export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction.

This law was put forward after Reserve bank of India laid out a couple of new guidelines for all organizations that participate in the transaction and storage of money, whether online or offline.

Short answer is that after March 1st, 2011, no Indian user could buy anything using the money stored in their PayPal account and they have to mandatorily withdraw all the money to their bank within 7 days. If anyone fails to withdraw, the money will automatically be refunded to the sender.

Some Consequences Of The New PayPal Law Enforced On Indians

1. If you go on a vacation for two weeks and remain offline during that time, chances are that any money received on your PayPal account will automatically be returned to the sender.

2. If you don’t have a credit card linked with your PayPal account, you won’t be able to buy anything online. Worst thing is that you won’t be able to pay your hosting fees and any online bills because after March 1st, PayPal requires a credit card for all outgoing payments from your account. This came as a shock to Indian PayPal users like me who don’t have a credit card and they used to pay their bills from the money they obtained from Freelancing or by providing other online services.

Auto withdraw Funds From PayPal to Your Bank Account

Looks like PayPal has loosened some grip from Indian users and has rolled out an update in its fund withdrawal system. You can now enable auto withdrawal of PayPal funds to your Bank account by logging into PayPal and going to Profile > Add /Edit bank account.


If you have only one bank account added to your PayPal account, it will be made the default option for auto withdrawal of funds. However, if you have multiple bank accounts added and verified, you can choose to which bank the funds should be withdrawn automatically.

This is an Indian regulatory requirement and applies to all PayPal users in India. Which means, there is no option to opt out of PayPal auto withdrawal system.

In it’s FAQ page, PayPal says

Your PayPal balance is auto withdrawn to your local bank account in India daily. You can check your bank account within 5-7 working days after your funds have been auto withdrawn from your PayPal account.

When The Auto Withdrawal System Can Result In Slight Loss?

Lets say you receive $150 from John on 1st June and $100 from Harry on 5th June.

Now according to this new system, the $150 will be automatically withdrawn to bank within 2nd June and the $100 will be automatically withdrawn to bank on 6th June. Since both $150 and $100 are less than INR 7000, PayPal will deduct a small fee amount of Rs 50 on both withdrawals. Which means, you lose INR 100 just because the auto withdrawal system is in effect.

Earlier, you could have manually withdrawn the gross amount of $250 to your bank on 6th June and need not pay any withdrawal fee whatsoever. I agree the fee amount is not that large but considering the exchange rate fluctuations, the little amount of control has been snatched from your hands. There is nothing you can do with your PayPal balance, as it will auto withdraw itself from now on.

Fed up of PayPal? Consider some online payment alternatives.

Thanks Mayur Agarwal for the tip.


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Amit Banerjee

Amit has been writing for Techie Buzz since early 2009 and keeps a close eye on web apps, Google and all things Tech. He also writes at his own tech blog, Ampercent. Follow him on Twitter @ amit_banerjee