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 Indians1. 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 AccountLooks 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 However, if you have multiple bank accounts added and verified, you can choose to which bank the funds should be withdrawn automatically.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.
Your PayPal balance is auto withdrawn to your local bank account in India daily.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.