Paypal vs Skrill for Indian freelancers

I’m new to freelancing. It’s hardly been six months since I earned my first dollars! I started out with writing articles (for dirt cheap rates as I realize now) and then I proceeded to graphic designing and then I combined writing with graphic designing and started writing tutorials about graphic designing. I don’t really earn much through all of this since I’m yet to invest time and effort into building up articles in blogs to earn passive income, but it is enough to fulfill my needs since I’m still a student.

Since the payment for freelancers is in a foreign currency, largely in dollars, Indians have to bear the pain of watching their hard earned money being slashed by small amounts in the form of fees by the e-commerce sites such as Paypal and Moneybookers. I end up cringing numerous times as I watch hundreds of rupees being slashed from the money I earned. One thing is for certain though – you shall have to lose some amount of money. It’s not much, but for larger amounts it can be substantial.

So how do you maximize the money that is reaching your bank account? Since Paypal and Moneybookers are the two major e-commerce sites in the world and many top freelancing sites advocate only these two services, I shall be talking only about them here. Here is a comparison of the two and you can be a better judge of which one suits your needs.


You can have only one currency for your account in Moneybookers which you can NEVER change unless you request them to close your account in order to open a new one with a different currency. However, in Paypal, you can have multiple secondary currencies.

It is important to first understand the concept of Currency Conversion Fees so that you don’t lose money in multiple currency conversions:

Currency conversion fees are charged at the rate of 2.49% by Moneybookers and at the rate of 2.5% by Paypal and are incorporated in the exchange rate. For example, if the exchange rate is 55 INR for every 1 USD, then the exchange rate shown shall be 53.625 INR for every 1 USD (55 – 55*0.025).

Now, if you always receive money in a single currency then Moneybookers would be the better option since they don’t levy any currency conversion fees if the payment is received in the currency registered for the account. You shall only be charged a onetime withdrawal fee of 1.80 EUR (as of AUG 2012) while withdrawing the money to your bank account and that’s all.

However, if you receive your payment in another currency, then the currency conversion fee will be applicable. Thus, if your account currency is USD and you receive money in GBP, then it shall first be converted into USD after deducting the fee and then again you shall be charged a withdrawal fee of 1.80 EUR at the time of withdrawing the money to your bank.

It is to be noted that the money will be converted into INR by your bank and they shall charge their own rates. Right now, SBI charges 25 INR + taxes for every transaction.

When it comes to Paypal, you shall always be charged a currency conversion fee at the time of withdrawal and there’s no escaping it. Unlike Moneybookers, where you can withdraw the money to your bank in USD, Paypal allows withdrawals only in INR.

However, in Paypal you can receive the money in any currency (among the list of currencies supported by Paypal) and it will make no difference since currency conversion fee is applied at the time of withdrawal. So, when it comes to receiving money in a different currency in Paypal, it’s almost the same asMoneybookers except that you won’t have to pay the 1.80 EUR withdrawal fee in Paypal.

So, it would be a lot cheaper to use Moneybookers if you are anticipating money in only one currency. Otherwise, Paypal is marginally cheaper since they do not charge any withdrawal fees. However, I find that Moneybookers is the better option since we shall benefit if the payment is substantial and in the same currency as the account currency.


Moneybookers allows users to have an account balance while Paypal does not. 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.

The advantage with Moneybookers is that 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. With Paypal, you shall have to accept the exchange rate of the day.


The verification process of Paypal is much easier and hassle-free as compared to Moneybookers. 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 Moneybookers, you shall have to perform the task of uploading money to a certain account in a foreign bank.

Moneybookers 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 Moneybookers may seem lengthy and might prove to be slightly inconvenient.


An unverified Paypal account has monthly receiving and sending limits of 500 USD each. An unverified Moneybookers account has no receiving limits but has sending limits of 0 USD for a 90 day period – i.e. you cannot send money using Moneybookers if your account is not verified.

Considering the above points, Moneybookers definitely seems to be the better option but many shy away from using Moneybookers because of the long verification process. I would definitely advise freelancers to use Moneybookers if they have the option to do so. Moreover, the strict policies of Moneybookers also make it seem quite trustworthy and secure.

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.


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.


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/-.


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.


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.


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:

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.


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.