WHAT IS THIS ‘PURPOSE CODE in PAYPAL’?
Or simply… WHAT IS THIS ‘PURPOSE CODE’?
RELAX…This entire article throws light on what, why, how & when about purpose code & it will enlighten you so that you start earning bucks from your International clients.
The Purpose Code – Crystal Clear Idea!
Purpose Code, Purpose Code in PayPal, or the Payoneer purpose code for freelancers. The newbie freelancers or the freelancers who are about to work with International clients usually search these phrases on Google. Let’s simplify, the purpose code/codes are defined by the Reserve Bank of India (RBI) to regulate & account for the Forex (Foreign Exchange) transactions happening in the country. Imports & exports are obvious in the country which has a more than 1 Billion population & a 2.8 Trillion GDP.
India imports & exports various goods & services to foreign countries & hence keep a track of the reason for incoming & outgoing money, and also tracks from where the transaction is occurring RBI defined the ‘Purpose Code’.
Digitalization & its impact on freelancing
Since the advent of the internet & because of ongoing digitalization, the world has become a global market. The exchange of services over the internet has rapidly increased in the last decade. Scott Galit, CEO of Payoneer quotes that the freelancing economy has exponentially grown in the last decade. And it is apparent in India that the count of freelancers is exponentially growing.
This implies an increase in the exchange of services with foreign countries. The payments that most of the freelancers opt-in to India are through gateways like PayPal, Payoneer, RazorPay, Instamojo, CCAvenue &, etc. As it is mentioned above the RBI has defined some rules & regulations for Forex transactions. Part of this is the Purpose Code. Indian freelancers usually go with PayPal for foreign transactions.
PayPal for Freelancers (PURPOSE CODE in PAYPAL)
If you are a freelancer providing services like Web Designing, Web Development, Software Development, Video Editing, Graphics Designing, and Content Writing. Also if you are providing Copywriting, Digital Marketing, Virtual Assistance, Affiliate Marketing & Branding as services. There may come a point when you will deal with an international client.
Then you will require signing up with one of the payment gateways. Thus to have hassle-free payments, the oldest & popular gateway is PayPal which is used by most Indian freelancers.
In the process of signing up with PayPal, you will come across a purpose code in PayPal. Purpose code PayPal is asked while performing every transaction. The one you select while signing up remains as default. But you have to take proper care in selecting the most appropriate one.
The various Purpose Codes in PayPal
When you sign in to PayPal after the account is verified with the details like email id & phone number. You need to select the Purpose Code in the PayPal portal’s Account section. Make sure you select the right Purpose Code in PayPal for every transaction to avoid unnecessary banking complications.
There are various options in the ‘Enter Purpose Code’ drop-down menu. Some of the popular ones amongst the freelancers are P0108-Dropshipping, P0802-Software & Web Development, and P0805-Blogging & Freelance writing. The Purpose Code is P1007 for video editors, graphic designers, affiliate marketing, digital marketing & web designers.
PayPal is only for foreign transactions and not for transactions within India. This is what is purpose code in PayPal’.
Caution! Don’t select the wrong Purpose Code
The PayPal purpose code used by freelancers is usually among the above-mentioned. One should take the utmost care while selecting the purpose code in the drop-down menu. This code directly refers to the point of amount withdrawal from the banks.
If you select the wrong purpose code then the bank officials will not allow the withdrawal & the process gets achy. Also sometimes you’ll end up paying heavy taxes if you enter the wrong purpose code. Earlier PayPal had rules that Indian users had to use the EIC (Export-Import Code) for transactions. But later it announced that one can use the Purpose Codes defined by the RBI.
This eased the task of payment by eliminating the process of running around in the banks for applying for IEC. It is also advised to store the screenshots of the invoices for verification & confirmation purpose.
The RBI revised the Purpose Codes in April 1997 for Forex activities. For the freelancers who are providing services within India, the payments can be done through NEFT/RTGS.
Freelancing in India
The freelancing industry is growing rapidly in India. The statistics say that India is the 2nd fastest-growing freelance market in the world with nearly 15 million freelancers. The year 2020 witnessed more than a 40% increase in the 2nd Quarter of 2020 compared to the 1st Quarter of 2020.
One of the key reasons for this rapid increase is the corona crisis that started in March 2020. Many people lost jobs because of the crashing economy. People turned to freelance to earn their bread & butter. The aspiring entrepreneurs take up freelancing as a side business and start off working as solopreneurs.
Also, freelancing is a source of extra income for many working professionals. Statistics say that 4 out of 5 freelancers are dealing with International & Domestic clients. Freelancers go for International clients, especially European, American & Middle East clients.
Freelancers earn multiple times their regular income when they work with International clients. International dealing brings in a payment gateway like PayPal which we have discussed above in detail. And most importantly we dealt with the selection of the right purpose code in PayPal which can save you from banking complications. Also, you can avoid heavy taxes & hurdles in amount withdrawal.
In a Nutshell
So let’s have a recap of the various things we discussed so far. Firstly, RBI has defined the various purpose codes to regulate foreign transactions. The Purpose code in PayPal is to be selected while signing up & while doing any transactions. Lastly, the reason why you should select the right Purpose Code in PayPal is to avoid banking complications. After having all this knowledge, freelancers just go get International clients & earn in Dollars, Dirhams, and Euros.