Changes in PayPal Agreement for users in India
- Any balance in and all future payments into your PayPal account may not be used to buy goods or services and must be transferred to your bank account in India within 7 days from the receipt of confirmation from the buyer in respect of the goods or services; and
- Export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction.
Which means that you cannot use the funds received by you through PayPal for any needs and the entire fund should go to your bank account in India and you cannot do any transaction above US$ 500.
This clearly indicates that the RBI wants to know the correct income that you get through PayPal. So if you want to make any Payments, the funding should come from your Credit Card.
I feel there should not be any problem if you have your account linked to your bank account in India, but you will be showing your entire income and expenses to the Reserve Bank of India. Earlier PayPal India users were having problem in withdrawing funds to their bank in India which was sorted out.