am I allowed to transfer into NRE account from paypal?
Credits into NRE accounts are restricted. It has to be established that the funds being credited are income outside of India.
In case of paypal, paypal uses local clearing to credit funds into Bank Accounts. So essentially one cannot credit NRE account by domestic clearing network like NEFT.
It is best that you withdraw the funds into Bank Account outside India and use SWIFT or remittance service to credit your NRE account.
I do not want to transfer to an NRO account since the money credited into it will become taxable.
This is not the right assumption. Credits into NRO are not taxable by default; if you establish that the funds are from outside India, there is no tax on the
income money transferred from abroad
into the NRO account. However, the interest that will be paid by the bank on the balance of the NRO account is taxable income in India and is subject to TDS. In contrast, interest paid on the balance in an NRE account is not
taxable in India and is not subject to TDS as long as you maintain NRI
However it does make sense to keep accounts segregated, i.e. income generated in India, credit the NRO account and income generated outside India credit to NRE.