Buying property in Dubai has become increasingly popular among Indian investors and can be attributed to the thriving real estate business, high returns and the investor-friendly environment in Dubai. But now, most Indians who believed they had taken a short cut to acquire Dubai property by using their international credit cards (ICCs) to make the payments are caught in some real big trouble back home.
What Seemed Easy, Has Turned Risky
Some buyers clicked on the payment links forwarded by develinking the IBS and the burnt-out homes on the site of the accident, and others swiped their ICCs when they visited the site of the property. There was a rush, there was convenience, no cumbersome paperwork, no bank-to-bank visits, and apparently, no onerous obligation of paying the 20% Tax Collected at Source (TCS) under the Liberalised Remittance Scheme (LRS) of India.
The problem is, you can only use credit cards to make transactions in current accounts, such as booking a hotel or shopping overseas. The purchase of the property in a foreign country is a capital account transaction and this flouts the rules of Reserve Bank of India (RBI). Implicit in the current RBI guidelines on the permitted type of transactions that can and cannot be effected using the credit card is the fact that real estate investments cannot.
The Panic Starts Now
Filled with trepidations of attracting attention of Income Tax Department or Enforcement Directorate (ED), most buyers are in the mode of damage control.
To rectify the mistake, they’re now:
- Transferring of the funds through the normal banking means under the LRS
- Asking developers to reimburse the previous payments made through a credit card
- Considering to apply to the RBI to get the compounding done, which is a procedure to regularise the violation and acknowledge the mistake and pay a fine
The aim will be to have the transaction appear compliant and eliminate any potential legal implications in the future.
Also Read: Sheikh Mohammed Bin Rashid Takes Historic Etihad Rail Journey from Dubai to Fujairah
What Is the LRS?
The Indian Liberalised Remittance Scheme (LRS) has set the amount of remittance at 250,000 dollars per year of the current financial year. It gives the ability to a resident individual to send money outside India to various reasons, which include, but are not limited to buying property or own asset abroad. The money should also be transferred with the help of an authorised dealer (bank) and the account should be of at least one year old in case of capital movements. When using a credit card, however, the system is bypassed at all, thereby landing it in the category of non-compliant.
Bottom Line
Easy swiping of a credit card may have appeared to be quite enticing, yet it is turning out to become an expensive cut corner. In case you want to purchase a property in a foreign country, it is advisable to confer with the rules set by the RBI with regards to the LRS, and file taxes accordingly without utilizing the assistance of credit cards in this process. Any shortcut that is legal is likely to prove counterproductive in long term. Since what can be a casual swipe today may quite possibly have a hefty penalty tomorrow.