The past few days have been a nightmare for Indian PayPal account holders. PayPal Notification: Reversed Transaction and bank transfer reversals even after a completed status update have not been cleared. It’s a financial glitch because RBI is upset about taxes they can’t collect due to loopholes.

PayPal has no arrangements to make transactions compulsorily taxable, and most account holders have been happily receiving personal payments as they gifts in dollars are the done thing. Once these payments are transferred to an Indian bank account people simply pretend it’s money that came along and don’t show it as an income, in which case all this money will be taxable.

Would Indians no longer be allowed to use PayPal? The risks are high considering there’s too much money involved. Will RBI step in? Well, why not, anyone would be happy with more taxes collected in times of recession.

PayPal Non-US account declaration

A few months ago, a thoughtful customer sent me this:

You have received this mail because you have used this email account to receive PayPal funds from XXXX Media Inc. (XXXX@XXXX.com) for purchasing services including content creation, WordPress template submission, etc.

XXXX Media Inc. is US-registered thus all payment issued shall be in compliance with US tax laws. A declaration statement is needed from you to declare the nature of your PayPal account.

Since your PayPal is a Non-US account, it will take only 2 minutes from you to compose a mail from this email address to partnership@serritekmediainc.com

The mail should look like this:
—

Subject:
Declaration Statement
Content:
XXXX Media Inc.,

I hereby declare that I do not have any income effectively connected to the USA.

My name
—

For your convenience, you can simply copy the above content when composing this mail.

By doing this, IRS will see your account with no effective connection to the USA and thus no tax will be applied to all the payment we have sent. If the declaration fails to arrive before the end of 2009, IRS might advise PayPal to lock down your PayPal and ours for inspection of possible money laundering.
This too could play a part in PayPal transaction reversals and non receipt of transfers made to your bank accounts.

In this short write up, I can only talk about PayPal transactions that are being reversed in India. Everybody needs to be less shocked and more responsible. This had to happen because too many people were receiving payments for services ( online jobs) and goods as gifts. It’s called cheating the Indian government because gifts can’t be taxed. Of course, the loopholes didn’t get exploited right at the start when most Indians began using PayPal towards the end of 2007.

Ever since, people got greedy and started taking every payment as a gift so now RBI isn’t happy at having lost on taxable dollars. As of now, PayPal has removed personal payment options, etc., so you can’t send or receive gifts, and hopefully your PayPal payments will not be reversed now. However, there is no clear indication regarding what is going to happen next.