The real estate boom in Dubai has drawn investors from all over the world, with Indian buyers being among the top contributors. However, recent developments have sounded alarm bells for Indian residents investing in Dubai properties using international credit cards (ICCs). Regulatory agencies in India have issued warnings, and those who’ve already made such payments may now face serious financial and legal consequences.
In this blog post, we break down what’s happening, why using international credit cards for foreign property purchases is problematic under Indian law, and what buyers can do to stay compliant while still enjoying the benefits of global real estate investments.
The Rise of Indian Investments in Dubai Real Estate
Dubai’s property market has long been a magnet for Indian buyers, thanks to its proximity, tax-free investment environment, high rental yields, and luxurious lifestyle offerings. In fact, Indians have consistently ranked among the top three foreign investors in Dubai real estate, especially in areas like Downtown Dubai, Dubai Marina, Business Bay, and Jumeirah Village Circle.
In many cases, Indian investors prefer to attend Dubai property expos or directly visit developer offices in the UAE. A common practice has emerged where developers allow buyers to make initial payments (usually 5-10%) using international credit cards, often to reserve units during pre-launch or limited-time offers.
At first glance, this seems like a convenient, fast, and modern solution to secure a deal. But beneath the surface lies a tangled web of legal and financial issues for Indian citizens.
Why Credit Card Payments Are a Problem Under Indian Law
Here’s the crux: under the Foreign Exchange Management Act (FEMA), Indian residents are not permitted to use international credit cards to make capital account transactions — and that includes buying property abroad.
International credit cards, issued by Indian banks, are typically allowed for current account transactions — such as travel, education, or medical expenses. Buying property is considered a capital account transaction, which must be routed through proper channels, specifically under the Liberalised Remittance Scheme (LRS) administered by the Reserve Bank of India (RBI).
The LRS allows Indian residents to remit up to $250,000 per financial year for permissible current or capital account transactions, such as overseas property investments. However, any remittance under LRS must be done through authorized dealers (typically banks) with proper documentation.
By using an international credit card to pay a Dubai developer directly, the buyer essentially bypasses this entire process, which can be seen as non-compliance with FEMA.
How Authorities Are Reacting
Regulatory bodies in India, including the Enforcement Directorate (ED) and the Income Tax Department, are now taking note. Several Indian buyers who used credit cards to pay for Dubai real estate have been served notices, and investigations are underway.
The key concerns include:
- Violation of FEMA regulations
- Non-disclosure of foreign assets, which falls under the Black Money (Undisclosed Foreign Income and Assets) Act
- Avoidance of Tax Collected at Source (TCS), which is required for overseas remittances
Experts warn that violators could face heavy fines, tax penalties, and even prosecution. Penalties under FEMA can go up to three times the amount involved. Under the Black Money Act, the tax can be as high as 120% of the property value if the asset is not disclosed in the Income Tax Return.
The False Assumption of Convenience
Many buyers argue they were unaware of the rules or were told by sales agents or developers that using a credit card was an accepted practice. Some even believed that credit card payments could help them avoid the 20% TCS that is deducted on foreign remittances above ₹7 lakh (~$8,400).
However, ignorance of the law is not a defense — and TCS cannot be avoided simply by choosing a different payment method. In fact, such transactions are still liable for TCS, and the tax may need to be paid retroactively, along with interest and penalties.
Developers Are Now Under Scrutiny Too
While the crackdown is focused on buyers, Dubai-based real estate developers are also facing pressure. Some developers have begun refusing credit card payments from Indian clients, while others are helping buyers reverse or refund those payments.
To help clients comply, many developers now offer:
- Flexible payment plans through bank transfers
- Official invoices to facilitate LRS-compliant remittances
- Coordination with Indian financial advisors to ensure documentation is correct
What Should You Do If You’ve Used a Credit Card?
If you’re an Indian resident who’s already used a credit card to pay a Dubai developer, it’s important to act fast:
- Inform the Developer: Contact the developer and request to reverse the credit card payment. Offer to make the payment through a bank transfer under LRS.
- File a Voluntary Disclosure: Inform the RBI and Income Tax Department about the transaction voluntarily. This can reduce the chance of harsh penalties.
- Pay TCS If Applicable: Even if you’ve already paid via credit card, you may still be liable to pay TCS. Consult with a tax advisor.
- Use the Compounding Route: For violations of FEMA, you can apply for compounding through the RBI, which may result in a monetary penalty but prevent further legal action.
- Seek Legal Help: Consult a FEMA lawyer or a tax specialist experienced in cross-border property investments.
Tips for Safe Overseas Real Estate Investment
To avoid such legal tangles, follow these best practices:
- Always use the LRS route for any overseas investment
- Declare foreign assets in your income tax returns (under Schedule FA)
- Pay applicable taxes including TCS and capital gains
- Consult professionals — a qualified chartered accountant or financial advisor is a must
- Avoid shortcuts like cash payments, crypto, or shell companies
Conclusion
Dubai remains an attractive investment destination for Indian buyers, but it’s critical to stay compliant with Indian laws. Using international credit cards may seem like a convenient way to make a down payment or book a unit on the spot, but the risks far outweigh the benefits.
FEMA violations, tax penalties, and legal scrutiny can turn a dream investment into a financial nightmare. Always use authorized channels, declare your assets properly, and ensure full transparency in all overseas transactions.
Leave a Reply