ED Cracks Down On Indians Using Credit Cards To Buy Dubai Property

India’s Enforcement Directorate (ED) has reportedly sent notices to a few individuals who used their credit cards to buy property in Dubai. At least three people were issued notices in February. The agency is questioning them about the source of funds used in these transactions. These individuals are believed to have either swiped their international credit cards while visiting Dubai to pay the initial amount or used payment links shared by UAE-based developers.

The issue arises because Indian laws do not allow people to use borrowed money to purchase property abroad. Since credit card spending is treated as a form of short-term borrowing, such transactions may violate foreign exchange rules. The ED is now examining whether there has been any misuse of credit cards and if the payments made for these properties broke existing regulations. Under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI), Indian residents are allowed to invest in foreign stocks and property, but only by transferring tax-paid money through proper banking channels.

The individuals who recently received notices from the Enforcement Directorate (ED) are now trying to sort out the situation. Many of them say they were unaware of the rules and are now approaching authorities to regularise their transactions. To fix the issue, they may have to correct the payment method and pay a penalty. In some cases, they could also suffer a loss if they are forced to sell the property in a weak market.

Now, these individuals are required to complete the administrative process and apply for compounding, where they will admit the violation and settle the matter by paying a penalty. In some situations, this could even mean reversing the original transaction. The process of fixing this can be complicated. It may involve sending fresh funds through banks and asking the developer to return the amount that was earlier paid using a credit card.

In some situations, the RBI might tell buyers to sell their property and bring the money back to India. This can be really difficult. People have to arrange the money themselves, without taking loans. Furthermore, given the depreciating rupee, sending money abroad becomes more expensive. If they can’t manage all this, they might have to sell the property and cancel the deal. But some bankers think the RBI may not be too strict in every case, especially because the money wasn’t sent through illegal ways like hawala.

Using international credit cards to purchase property abroad is not permitted, as such transactions fall under capital account transactions. Credit cards, on the other hand, are meant for routine current account expenses. They may need to explore ways to regularise the transaction in line with RBI guidelines. This could involve seeking approval or paying a penalty under the compounding mechanism.

In simple terms, international credit cards are intended for everyday expenses such as travel bookings, shopping, or hotel reservations, not for making large investments like buying property overseas.