Hi there,
I just want to know that How search engines identify paid links?
Would anyone like to explain about it?
Thanks

Google cannot identify paid links as such but if a site is suddenly flooded with links it might sniff a manipulation and take an action against it.

Another method would be if someone files a spam report to Google.

Not all paid links violate our guidelines. Buying and selling links is a normal part of the economy of the web when done for advertising purposes, and not for manipulation of search results. Links purchased for advertising should be designated as such. This can be done in several ways, such as:

Adding a rel="nofollow" attribute to the <a> tag
Redirecting the links to an intermediate page that is blocked from search engines with a robots.txt file

1. Link Brokers – These give you access to a selection of websites that are willing to sell text ads. Usually the system is automated, sellers place code on their sites allowing brokers to distribute links throughout networks. These seem to be the most obvious method that is identifiable by Google.

2. Unrelated content – If you buy links on a website that has no relevance to your own content then what value does this give the users? None. Organic or natural links more often than not will link to relevant content, providing added value to their website and the users that visit the links.

3. Anchor text – In an ideal world every link established naturally would contain keywords and phrases that you want to rank well for. Unfortunately this very rarely happens, natural link growth will include nofollow tags, banners, brand terms and a selection of utterly useless keywords such as "here" or "this website".

4. Link relationships – Having 100% followed links with targeted keywords will undoubtedly set some Google alarm off somewhere. A natural link relationship look will have a selection of followed, nofollow, affiliate and tracking parameters.

5. Link increase – Something that is often overlooked by other SEOs is the natural versus manipulated link growth. A natural increase will be slow but generally consistent, with maybe a few spikes due to new content and site updates (which I believe Google checks). A manipulated increase will be quick with many spikes and even overall drops – people do forget to pay for their links. See the diagram below to show how a natural link increase usually looks and a blatantly obvious manipulation: