Outlook Business Desk
Many Indians used international credit cards (ICCs) to make quick down payments to buy properties in places like Dubai, thinking they would skip on paperwork and avoid the 20% tax collected at source (TCS). But now they're under regulatory scrutiny.
Buyers either made payments through links shared by UAE builders or swiped their cards during visits to the Emirates (cities like Dubai and Abu Dhabi in the United Arab Emirates). It seemed fast and convenient—with no bank visits or forms involved—but it clashed with the Reserve Bank of India’s (RBI) norms on overseas investments.
The RBI's rules restrict ICC use to current account expenses like travel bookings or online shopping. Buying overseas property is a capital account transaction—something ICCs are not meant to be used for, even if done physically while being present there.
Under the Liberalised Remittance Scheme (LRS), a person can remit $250,000 per year for buying property abroad. But ICC expenses on foreign property—even during travel—does not qualify under LRS, making them a violation of FEMA norms.
There’s no rule that explicitly bans the use of International Credit Cards (ICC) for overseas real estate. But the Reserve Bank of India (RBI) notifications and Foreign Exchange Management Act (FEMA) norms treat such deals as regulatory breaches, say bankers and practitioners, as reported by The Economic Times.
To correct the mistake, many investors are asking builders to cancel the credit card payments. They then send fresh funds through proper banking channels under the RBI’s Liberalised Remittance Scheme (LRS) and seek refunds.
If the builder doesn’t refund the credit card amount after receiving a valid remittance, the buyer may be forced to sell the property and repatriate the funds to India to comply with rules.
Experts say the RBI should take a lenient view of the matter, as the payment was legitimate—the error was in the mode of payment. If buyers come forward, the RBI can 'compound' the breach—allowing regularisation after paying a penalty.
Some buyers are choosing not to approach the RBI and are instead reversing the credit card transaction quietly. Their aim is to fix the mistake discreetly without drawing attention from tax or enforcement authorities.