The Extract of PayPal legal relationship for India is reproduced below for reference only.you are advised to go their website http://www.paypal.com/. It is providing payment processing service and acting as agent on behalf of you. In my opinion you are liable to pay service tax on service amount charged to you. Such service may fall under Business Auxiliary Service or Credit Card, Debit Card, Charge Card or other payment card related services.
Further if service provider ,like PayPal ,is located outside India then it is receipent of service,person residing in India, is liable for service tax in India.
It is better if you consult your CA/TAX-CONSULTANT/LAWYER/OR ask Service TAX department.
The Legal Relationship between You and PayPal.(pl see PayPal website address)
2.1 Agency Relationship. PayPal acts as a facilitator to help you accept payments from and make payments to third parties. We act as your agent based upon your direction and your requests to use our Services that require us to perform tasks on your behalf. PayPal will at all times hold your funds separate from its corporate funds, will not use your funds for its operating expenses or any other corporate purposes, and will not voluntarily make funds available to its creditors in the event of bankruptcy or for any other purpose. You acknowledge that (i) PayPal is not a bank and the Service is a payment processing service rather than a banking service, and (ii) PayPal is not acting as a trustee, fiduciary or escrow with respect to your funds, but is acting only as an agent and custodian.
Discussion on this subject is required. We may seek a clarification from service tax department.
It is better to be safe and ensure better compliance with the rules.Ignorance is not any excuse.
