Paypal vs Skrill vs Payoneer for Indian freelancers


I have been freelancing for about five years now! I remember being so confused during those days about which payment agency to choose for receiving my hard earned money! I had so many concerns: whether the money would safely reach my bank account; whether I'm getting the best deal in terms of fees; whether I have chosen the correct currency; etc.

I didn't have much guidance back then about these issues and so I took me a while to understand all the options available to me and judge which one is the best. Initially, we had only Paypal and Moneybookers (which later became Skrill) to choose from. However, recently, Payoneer has started offering its services and the fees and convenience that it offers are excellent and more competitive as of now.

Below I have compared various aspects of the three so that you can decide which is the best for you. I have also included some suggestions that may help you decide in case you are not sure about which options are suitable for you.




CURRENCY


SKRILL

You can have only one currency for your account in Skrill which you can NEVER change unless you request them to close your account in order to open a new one with a different currency. This is not a problem if you receive all your payments in a single currency, say, for example, USD.

However, if you are freelancing on multiple websites and each of them have a different payout currency, then it will lead to unnecessary currency conversion fees. Thus, if your account currency is, say, USD, and if you received payments in GBP, then Skrill will convert that money currently in GBP currency to USD currency after deducting currency conversion charges. The irony is that the money is again subjected to currency conversion charges (at the bank level) when you withdraw it to your bank account which is in another currency currency, say, INR.

It is also important to note that money transfers from Skrill involve the use of an intermediary bank which results in the imposition of an intermediary bank fee (around USD 25). This pushes Skrill into being a noncompetitive payment option as the other two agencies (Paypal and Payoneer) do not charge any such fees.

Let me cite some examples (assuming you are a freelancer based in India) showing the step-by-step procedure of the money being transferred to your bank account:

Scenario 1: Payment received in USD & Skrill Currency - USD

Payment received (USD) >> Skrill's Withdrawal Fee >> Intermediary Bank Fee >> Currency Conversion Fee charged by your bank (USD to INR) >> Money received in your account (INR)

Scenario 2: Payment received - GBP & Skrill Currency - USD

Payment received (USD) >> Currency converted from GBP to USD by Skrill (currency conversion fees charged) >> Skrill's Withdrawal Fee >> Intermediary Bank Fee >> Currency Conversion Fee charged by your bank (USD to INR) >> Money received in your account (INR)

Scenario 3: Payment received in USD and Skrill Currency - INR

Payment received (USD) >> Currency converted from USD to INR by Skrill (currency conversion fees charged) >> Skrill's Withdrawal Fee >> Intermediary Bank Fee >> Money received in your account (INR)


PAYPAL

Paypal allows you to hold multiple currencies from among its list of supported currencies. The image below will make it clearer for you:




























Thus, you may receive the amount in any currency (from the supported ones) and you can withdraw it to your bank account without having to pay for the needless multiple currency conversion stages to USD and then again to INR (as seen in Skrill above).

However, please note that your bank will have its own currency conversion fees and there is no way to avoid that. You will save on the intermediary bank fees though as I have never seen this kind of fees being charged by Paypal in all these years.


PAYONEER

As of now, Payoneer allows you to receive payments in three currencies - USD, GBP and EUR.




This, like Paypal, is another advantage over Skrill as you save on fees for the multiple currency conversion stages.

MONEY WITHDRAWAL


SKRILL

Ease of withdrawal: Quite easy and straightforward and you just have to follow the instructions on the website.

Speed of Transfer: Takes a bit of while as the money is transferred via SWIFT. Also, the inclusion of the intermediary bank increases the delay. Approximate time for the transfer to be completed can be anything from 5 working days to 15 working days.

Fees: Plenty of fees here with withdrawal fees, multiple currency conversion fees (if currencies don't match), intermediary bank fees and bank's currency conversion fees (if Skrill account currency is not INR).

PAYPAL

Ease of withdrawal: Quite easy and straightforward and you just have to follow the instructions on the website. However, you have to enter the purpose of receipt of payment in accordance with RBI rules. It is also mandatory to register your PAN with your account.

Speed of Transfer: Speedy as the mode of transfer used is NEFT. Amount is transferred within 2-5 working days.

Fees: Paypal's withdrawal fees and currency conversion fees (on the rare occasion if currency of money received is not supported by Paypal). There is no currency conversion fee charged by your bank as the amount received in your bank will always be in INR.

PAYONEER

Ease of withdrawal: Quite easy and straightforward and you just have to follow the instructions on the website. However, you have to enter the purpose of receipt of payment in accordance with RBI rules. It is also mandatory to register your PAN with your account.

Speed of Transfer: Speedy as the mode of transfer used is NEFT. Faster than Paypal. Amount is transferred within 1-3 working days.

Fees: FREE WITHDRAWALS and currency conversion fees (on the rare occasion if currency of money received is not supported by Payoneer). There is no currency conversion fee charged by your bank as the amount received in your bank will always be in INR.


ACCOUNT BALANCE


SKRILL

Skrill allows users to have an account balance which means that there is no minimum timeline within which you will have to withdraw the amount to your bank account. Thus, you can hold your balance until you feel that the exchange rates are the best and then you can withdraw the amount to get the best exchange rate.


PAYPAL

With Paypal, you shall have to withdraw your balance every single day failing which it shall be withdrawn automatically to the bank account that you have registered. Thus, you shall have to accept the exchange rate of the day. However, you can divide the money into multiple withdrawals to multiple bank accounts that you may have registered with Paypal.

PAYONEER

With Payoeer, the balance is withdrawn automatically to the bank account that you have registered. You have no control on when you want to withdraw the money. Again, like Paypal, you shall have to accept the exchange rate of the day.

Another thing to note is that Payoneer allows you to add only one bank account and, unlike Paypal, you cannot divide your withdrawal money among mutiple bank accounts.


VERIFICATION PROCESS


The verification process of Paypal is much easier and hassle-free as compared to Skrill. All you have to do in Paypal is to provide your bank details and they shall deposit two small amounts in your account which you shall have to enter correctly during the bank account verification process. However, in Skrill, you shall have to perform the task of uploading money to a certain account in a foreign bank.

Skrill also requires that the users have a bank account in a branch which has a SWIFT code. It is an international bank identification code and is required for transactions involving foreign exchange. If your branch doesn’t have a SWIFT code then you might have to go and talk to your bank’s officials and ask for their advice on what action to take.

Paypal asks for no such code – just the IFSC code which every single bank branch in India possesses. This makes it easier to complete the verification process with Paypal while that of Skrill may seem lengthy and might prove to be slightly inconvenient.

There is no such verification process for Payoneer  for adding bank accounts as of now. Thus, the process is quite simpler in case of Payonner.


VERDICT

From the above positives and negatives, I would say that it would be beneficial for you to choose either Payoneer or Paypal. If you receive payments only in USD/GBP/EUR then I would suggest that you use Payoneer because of its much lower fees and faster transfers. Also, the account opening procedure of Payoneer is much simpler and hassle free as compared to Paypal and Skrill.

If you receive payments in currencies which are not supported by Payoneer, then you have limited options and I would suggest you select Paypal. Skrill has become very costly and I see no benefits arising out of using Skrill for getting freelancing payments.

Indian Freelancers' Tax Guide

Do Indian freelancers have to pay taxes in India?

The answer is yes, you have to pay your taxes if your income falls under the taxable income slab. It doesn’t matter where your income comes from – paypal, skrill, payoneer or direct bank wire - once you receive the money in your bank in India, it is taxable. So now you must be wondering which ITR form should you fill to pay your taxes and how you can avoid paying unnecessarily large amounts of income tax.

Let me try and help.

DO I HAVE TO REGISTER MY WORK AS A BUSINESS?

Since your freelancing can be considered as a business of which you are the sole owner, you are termed as a ‘Sole Proprietor’ under Indian laws and you do not need to register your business or get a TAN (Tax Deduction Account Number). Being a sole proprietor, you shall fall under the self-employed category and all your income will fall under the category “Income from other sources”. Under the present system of rules and regulations, freelancers who provide services such as writing, graphic designing, IT, etc. are not exporters of goods and hence do not need to register themselves for TAN.

HOW MUCH TAX SHOULD I PAY?

There are different tax slabs which have been classified according to income levels.
First of all, every citizen who earns more than Rs. 200000 but less than 500000 has to pay taxes at the rate of 10% of amount by which the total income exceeds Rs. 200000/-. So, if you have earned, say, Rs. 350000, the taxes that you need to pay are calculated as such: 350000 – 200000 = 150000 and ten percent of 150000 is Rs. 15000 – this is the amount you need to pay as your income tax.

Similarly, if you earn more than Rs. 500000 but less than Rs. 1000000, then you shall have to pay Rs. 30,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-. For incomes more than Rs. 1000000 you pay Rs. 130,000/- + 30% of the amount by which the total income exceeds Rs. 1000000/-.

WHICH TAX RETURN FORM SHOULD I FILL?

The tax returns form that you must fill is ITR4 and NOT ITR1 as is commonly believed. Tax returns are required to be filled every year following the year when the income was acquired. For example, if you earn Rs. 230000 from April 1st, 2013 to March 31st, 2014 then you will have to pay Rs. 3000 as taxes before 31st April, 2014 and you will have to file your income tax returns before July 31st, 2014. The year following the year of income is called the assessment year. Thus, in the above case, the assessment year is 2014-15.

HOW IMPORTANT IS ADVANCE TAX?

Now a word of caution – if your tax exceeds Rs. 10000 in a fiscal year then you shall have to pay advance taxes. Failure to pay advance tax may result a penalty of an interest rate of 1% per month on the amount of tax to be paid – that is a very high interest rate.

Advance taxes are taxes which are paid thrice a year at regular intervals instead of the lump amount at the end of the fiscal year. The rules are that if your income tax liability is more than Rs. 10000 in a fiscal year then you shall have to complete paying 30% of the tax by 15 September, 60% by 15 December and 100% by 15th March.

Thus, if you expect (remember that you will have to judge beforehand if the income tax you need to pay will exceed Rs. 10000 at the end of the fiscal year) a taxable income of Rs. 400000 in the year 2014-15, then your total tax liability becomes Rs. 20000. This being more than Rs. 10000, you shall have to pay Rs. 6000 (30%) by September 15, 2014, an additional Rs. 6000 (6000+6000=12000 i.e. 60%) by December 15, 2014 and an additional Rs. 8000 (6000+6000+8000=20000 i.e. 100%) by March 15, 2015.

However, if your taxable income doesn’t exceed Rs. 300000 then you won’t have to worry about advance tax. Note that by taxable income I mean your income after all deductions due to tax saving schemes and the like. So, if you earn Rs. 390000 and then you invest Rs. 100000 in a tax saving fixed deposit under section 80C, then your taxable income is Rs. 290000 and not Rs. 390000. Thus your tax liability becomes Rs. 9000 and hence you need not pay advance tax.

HOW DO I SAVE TAX?

There are many schemes you can take advantage of to save on taxes. The internet is rife with articles on how you can avail of different tax saving schemes like 5 year fixed deposits, life insurance schemes, PPF, ELSS, etc.

Another important aspect that you can take advantage of is that you can deduct the expenses (related to freelancing) that you have incurred from your taxable income. Thus, you can deduct the following expenses:

Rent
Internet charges
Electricity charges
Computer equipment purchases/repairs
Telephone charges
Water charges
Restaurant/Hotel charges for meetings with clients
Salaries or payments to freelancers whom you hire

Of course, you need to have proof of the above expenses in terms of receipts and memos and preserve it in case you are asked for it.

SKRILL USERS’ ADDITIONAL BENEFIT

There’s another tip which Skrill users can take advantage of. Suppose it is February or March and you have already earned Rs. 480000. You are expecting another payment of Rs. 100000 in a couple of days. This will increase your tax liability to the second slab (20%) in the present year and cause you to pay more taxes. In this scenario, you can note that if you wait for another couple of months (till 1st April), you will be able to show this income of Rs. 100000 in the next fiscal year and thus remain in the first tax slab (10%) in the present year.

You can do this if you receive the payment through skrill. Since you can maintain a balance in skrill, you can just hold the balance and withdraw after a couple of months. However, this will rob you of any interest that your bank would have given on the amount had you withdrawn the money to your bank. But, if the rate of dollar to rupee rises, then perhaps you could actually gain from it. It all depends on your judgement and, of course, luck.

Please use the comments section to ask any questions and I shall be happy to respond.