Indian buyers investing in overseas real estate, particularly in Dubai, have been cautioned against using international credit cards (ICCs) for down payments. Such transactions can violate Indian foreign exchange laws and attract serious legal and financial consequences. Experts urge buyers to comply strictly with the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS) and FEMA regulations to avoid regulatory scrutiny and penalties.
Why using international credit cards for property purchases is risky
Indian real estate and tax specialists emphasize that international credit cards are designed exclusively for current account transactions—such as shopping, travel, and education—not capital account transactions like overseas property investments.Under Indian law, specifically the Foreign Exchange Management Act (FEMA), purchasing property abroad is categorized as a capital account transaction. ICCs are only permitted for current account transactions, meaning that using them for property payments violates both FEMA and RBI guidelines.Anurag Chaturvedi, CEO of Andersen UAE, explains that the RBI’s approved framework for such investments is the Liberalised Remittance Scheme (LRS), which allows Indian residents to remit up to $250,000 per financial year through authorized banks with full regulatory oversight. Bypassing the LRS by paying with ICCs contravenes FEMA rules and can trigger investigations by the RBI and other authorities.
Regulatory scrutiny and legal implications
Recent cases have emerged where Indian nationals purchasing property in Dubai via ICCs—either through developer payment links or during visits—are now under the scanner by Indian regulators, including the RBI and the Enforcement Directorate (ED). These authorities are probing whether the use of ICCs circumvents established remittance channels, violating FEMA and possibly the Prevention of Money Laundering Act (PMLA).Buyers using ICCs risk penalties for breaching FEMA and PMLA provisions, potential tax liabilities if transactions evade Tax Collection at Source (TCS), and legal action if money laundering suspicions arise. Some individuals may be forced to reverse their payments and complete transactions through authorized banking channels under the LRS to regularize their property purchases.Gaurav Keswani, CEO of JSB Incorporation, stresses that ICC payments for overseas property are not aligned with RBI guidelines and the LRS limit, which require remittances to be conducted via authorized banks, supported by thorough documentation and a bank account held for at least one year.
Financial and economic risks of using ICCs
Beyond legal consequences, the financial drawbacks of using international credit cards for such high-value transactions are considerable. ICC payments involve high interest rates, foreign exchange markups, late fees, and penalties, making this method economically imprudent.Chaturvedi highlights that this practice is both legally risky and financially unsound. He advises buyers to utilize the LRS through registered banks, ensure all transactions are properly documented, and seek expert legal or financial advice before investing abroad.He succinctly summarizes, “Buying property abroad with an international credit card is like trying to pay for a house with a travel wallet – it’s not permitted, and it could get you into serious trouble.” Buyers are encouraged to follow authorized banking and regulatory procedures to avoid complications.
Recommendations for Indian property buyers
- Use the Liberalised Remittance Scheme: Indian residents should remit funds for overseas property investments through authorized banks within the $250,000 annual LRS limit.
- Maintain Comprehensive Documentation: Keep all receipts, bank statements, and correspondence related to property transactions to ensure transparency and compliance.
- Seek Professional Advice: Consult legal or financial experts specializing in FEMA, RBI regulations, and international property transactions.
- Respond to Regulatory Inquiries Promptly: Address any notices or investigations from authorities immediately to mitigate risks.
- Avoid Partial ICC Payments: Some developers accept small down payment reserves (usually under Dh80,000), but the full payment must comply with Indian laws.
