How to Calculate Tax with the amount in Paypal? [Indian Users]

Dude think of it this way ... You have a bank account abroad why will RBI interfere in the balance of that ?? when you bring the funds to india thats when RBI comes into play... why do you think only withdrawals were stopped and not all paypal movements (like sending funds and receiving funds) ???

 

I too think bohra is correct. Only when Paypal transfers your money to the bank, RBI will come into picture. But I'm not so sure. If anyone can ask the RBI or PayPal officials and post a reply over here, it'll be great.

 

I consulted a CA and he says that I'll have to show PayPal income even if I don't withdraw it. Really confused now. :s

 

True! The main reason why many CAs just ask for bank account statement showing paypal credis, is our govt made tax filing much simpler. if you earn more, be prepared to show paypal account.

Bohra - do you know that if you want to open a REAL bank account abroad , its against FEMA and you have ask for RBI permission. I assume Paypal is similar to foreign bank account.

 

Thanks olddocks. Also to those who are still confused :

1. You need to display your income on the financial year as it was received by you (in paypal). It doesn't matter when you transfer it to your bank account, also you will need to take the exchange rate as per the day of receiving payment on paypal.

2. If you feel that paypal is foreign entity and thus you should show your funds the day you transfer to your bank account then please think once more what reason would you show for your amount??? Will you show that paypal given it to you? as if you showed that amount was obtained by you (by paypal on your behalf) in previous financial year then why you didn't showed in that financial year. You will find yourself in trouble.

Paypal is not regulated by RBI but once they send you the funds then RBI & Income Tax Deptt. can cause trouble to you because the main reason for tighten the security is (1) The Funds are not part of Hawala (Money laundring) (2) It is not for Terrorist Actvity & If you don't show the source in the same financial year in which you received then you will be in trouble. So better be safe than be Sorry.i

 

Ok, seems I have disturbed a hornet nest by this query

Anyways, I was always clear about one thing, however creative ideas we come up with, IT or RBI will not allow you to be one. The logic is simple, if you receive any amount in Paypal, Bank, Earth, Sky or Water, It is an income earned by that particular year, you would need to show it as your income whatsoever. So the number 1 query is solved. Guys! we have no choice but to show the income if it touched your PP account.

But the elusive query for which I started this thread, nobody seems to be getting the point on this one. See I am asking OK we will show the income, but do we need to withdraw to the Bank from Paypal to show???? Is there not any possible way to keep the money in PP and yet show the income while computing Tax? If yes, tell me how would you manage the exchange rate issue. It surely cannot be the rate when you received the amount in PP but it has to be the rate of withdrawal practically.

To make the matters simple, If you had 1K$ in PP as on 1st April, what would you guys do to show that income in Indian rupees for the year 2009-10?. Surely there has to be some way as we need not keep PP balance as zero every 31st March..

regards

Jeet

 

I'd tend to disagree with that. I'd say we'd have to pay taxes on the amount we withdraw from our P/P account. There is no way that normal Tax rules would apply for the entire amount in our Paypal a/c. That would create havoc as there are a lot of individuals who outsource business taking in money from clients, sending it to other providers and keeping a margin for themselves. Being a link dealer myself, this is what I do as well. If Govt wants to tax us for every single penny in our Paypal a.c, then the taxes itself exceed profit margins.

I wish there was an official clarification from the IT department or PayPal regarding this. Logically, I'd assume there would be no taxes for the amount in our PayPal, because if there is..I don't think anyone can work online without registering a Pvt. company limited and showing every single outward Payment from PayPal as expenses.

P.S:- What exchange rates would the govt take for P/P tax calculation.

 

PayPal withdrawals to banks / cheque = Tax
You are entitled to file for that alone

 

*facepalm* Tax is calculated on the profit.

 

I know..but what about those who arent registered Private companies.. In case you have a current Bank A/c, all is well and good, but when you withdraw money to a Savings bank a/c , you cannot show any expenses at all. Total tax would be on the money that you've earned, not on your profits. I wonder how many freelancers here have a Current Bank A/C and a registered company to go with it so that they can show expenses..

 

You can show expenses. You can download statement from PayPal logs and show it in your tax filing along with the PAN id.

 

As an Indian citizen, you are not allowed to hold foreign currencies in any form. and could be a violation of FEMA unless permitted by RBI.

 

Spend whatever you want from your bank account or Paypal and show them all as your business expenses.

Im going to show like 12-15 lacs as expenses this time and pay like 50-60k as taxes.

So, pay taxes right and make sure, you use the full benefit of your Paypal spendings also.

I have scanned and printed our 1088 Payments Received and 598 Payments Sent copies to my CA last week. He is going to make a balance sheet and make everything cool. JAI HO!

 

My CA is doing the same.

 

See mate its useless to fight among ourselves .. it does not really solve our problem

As per as u said why don't we pay tax to US Govt ... For that we need an SSN / Tax Id .. Provide us we will do the needful as simple as that

As per as consulting with accountants / CA 90% of the morons don't even know what PayPal is and leave about CA's 95% banks don't even know about PayPal .... See if they would have know these India would have its own online payment system and never use PayPal . Hope u understand me .. Don't forget India is PayPal's biggest market

Moreover people from India have bank accounts at many places outside India .. Govt. Of India never penalized anyone ever why would anyone interfere when u never withdraw any money.

If u have any queries better ask RBI directly .. they will solve all your hardship queries

 

Hello!

For all those who are still interested in this query, I had a detailed discussion with my accountant today.

First and foremost, he said what ever income you earn this financial year by any means should be shown while computing tax.

Secondly, in order to show that income, there is no need to withdraw all the amount from PP account. All you need to do is show as "receivables" considering the exchange rate of 31st March. For example, if there was 1K$ as on 31st in PP and the exchange rate is 45.. then the income needs to be shown as 45000 along with other incomes already received in bank. In case the exchange rate shoots upto 47 and then we withdraw in the next year. .the difference amount needs to be shown as the income for next year. ie. 47-45 2 x 1000 (1K$) = Rs. 2000. So by this way, you are reporting all the income correctly.

I am finally going to follow this.. as it solves my purpose of not having to withdraw all funds on 31st March just for computing income tax.

Hope others gets benefit from the above solution provided by my accountant.

Thank you one and all for participating to my query

Regards

Jeet

 

Paypal is a new online thing happened in India and still tax experts in India are baffled how to handle this. To make things worse, CA and other auditors have no knowledge and are still sitting in dark. Our govt needs to adapt to emerging technologies like paypal and amend tax laws accordingly.

What bothers me the most is, at present situation - showing paypal will only bring up too many unwanted questions from our govt. i personally dont like to show paypal transactions, except only if asked by authorities.

 

I have not read all entries but here is my suggestion for OP.

You dont need to pay tax for Money you withdraw from Paypal, You need to pay taxes on money you earn per month.

Suppose you received 1 Lakh INR in month, and for your work you must have hired some Workers, and you paid about 75000 to them ( just an Example )
so your net earning is 25,000 Rs per month, and total will be about 3 Lakh Per year. Now you need to pay according to this 3 Lakh Rs. ( Read the Latest Tax Slabs of Indian Govt. ) You can also save tax by showing your savings, Loans etc, If you have any home loan running then it will save taxes as well, buy some Mutual Funds with ( 3 year Lock Period ) and do such tax saving investments to save Taxes,

At the end I would say dont run from taxes, Try how to make them as less as possible legally. I am paying taxes from past 2 years even when i could have save taxes.

 

Tax caclutation can be done using this formulae

TOTAL MONEY RECEIVED IN BANK VIA PAYPAL - FREE TAX LIMIT = NET TAXABLE INCOME

Free Tax Limit is 1,90,000 for famales, 1,60,000 for males and 2,40,000 for senior citizens

 

thanks for ur suggestion.....