As Dubai’s property market turns uncertain, some Indians who bought homes there using credit cards are now facing trouble. According to a report from ET, the Enforcement Directorate (ED) has sent notices to some Indians who bought property in Dubai using credit cards, a move that has now put them under scrutiny.
The report suggests that many of these buyers had used international credit cards during visits to the UAE to pay the initial deposit. Others made payments by clicking on links sent by developers.
What many did not realise was that this way of paying may break Indian laws. At least three people were sent notices in February, with officials asking them to explain the source of their funds, ET reports.
ED sends notices to Indians over Dubai property deals
Credit card payments are treated like short-term loans. Indian foreign exchange rules do not allow people to borrow money to buy property abroad.
Under the Liberalised Remittance Scheme of the Reserve Bank of India, Indians can invest abroad, including buying property, but only by sending tax-paid money through proper banking channels. Using a credit card does not follow this route, which is why these transactions have now come under the scanner.
Those who have received notices are now in a difficult situation. They may have to fix the way the payment was made, pay penalties, and in some cases even sell the property, possibly at a loss, especially as the Dubai market is currently weak.
Legal view on the issue
“The recent round of ED notices have gone to individuals who may have unknowingly used credit cards to buy UAE properties. They should approach RBI to regularise the mode of payment. RBI may take a lenient view as the money is legitimate even if the mode of payment is wrong. Many a time, resident Indians do cross-border purchases without knowing the law or consulting CAs,” Rajesh Shah, partner at Jayantilal Thakkar & Co. told ET.
Now, to settle the issue, individuals will need to go through a process called compounding. This means admitting the violation and paying a penalty to close the case. Before that, they may have to complete administrative steps, which could even involve reversing the original payment.
“The regularisation process could involve remitting fresh funds through banks and instructing the builder to send back the amount that was paid with credit card. In certain circumstances, RBI may ask buyers to sell the property and bring back funds,” Shah said, speaking to ET.
Experts say using international credit cards for such purchases is not allowed because buying property abroad is treated as a capital account transaction. Credit cards are generally meant for everyday expenses like booking hotels, buying goods, or downloading services, not for property deals.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.