Buying Property in Dubai with a Credit Card? ED Notices May Be on the Way

When it rains in Dubai, it pours in Mumbai. As the desert city grapples with a nervous property market, Indians who used credit cards to purchase homes in Dubai are beginning to receive notices from the Enforcement Directorate (ED), according to a report by the Economic Times (ET).

Many of these buyers had either swiped international credit cards (ICCs) during visits to the UAE to pay initial deposits or used payment links shared by developers—often unaware that such transactions could violate Indian foreign exchange laws, ET reported.

At least three individuals were served notices by the central agency in February, seeking details on the source of funds used for these property deals, ET cited sources as saying. Credit card transactions are effectively short-term borrowings, and foreign exchange regulations prohibit individuals from using borrowed funds to acquire overseas property. Under the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS), resident Indians can invest abroad only by remitting tax-paid funds through authorised banking channels, as per ET.

Those who have received notices—and even those who may face scrutiny later—now find themselves in a Catch-22 situation. They must navigate the process of rectifying the transaction, potentially pay penalties, and in some cases absorb losses if forced to sell property in a weakening Dubai market, at a time when its safe-haven appeal is also being questioned.

“The recent ED notices have been issued to individuals who may have unknowingly used credit cards for property purchases in the UAE. They should approach the RBI to regularise the payment route. The RBI may take a lenient view since the funds are legitimate, even if the mode of payment is not compliant,” Rajesh Shah, partner at Jayantilal Thakkar & Co, told ET. He added that many resident Indians undertake cross-border transactions without fully understanding regulatory requirements or consulting advisors.

Before applying for compounding—a process of admitting the violation and settling it by paying a penalty—certain administrative steps must be completed. In some cases, this could involve reversing the original transaction. “The regularisation process may require remitting fresh funds through banking channels and asking the developer to refund the amount paid via credit card. In certain situations, the RBI may also require the buyer to sell the property and repatriate the funds,” Shah told ET.

This process, however, can be challenging. Buyers would need to arrange funds without borrowing and remit dollars at a time when the rupee is at record lows. If this proves difficult, they may be compelled to sell the property to unwind the transaction. That said, bankers told ET that the regulator may not always insist on reversing the deal, especially since funds were not routed through illegal channels such as hawala.

“Using international credit cards for such purchases falls outside the permitted framework, as acquiring overseas property is classified as a capital account transaction. Where such payments have already been made, individuals may need to explore regularisation options, including the RBI’s compounding mechanism,” Moin Ladha, partner at Khaitan & Co, told ET.

ICCs, like domestic credit cards, are meant for current account transactions such as travel, online purchases, and services—not for acquiring assets like real estate abroad. According to Pankaj Bhuta, founder of P. R. Bhuta & Co, even if the ED has initiated proceedings, individuals can still opt for compounding with the RBI at any stage before adjudication concludes. “Such compounding is typically subject to a no-objection from the ED, which has been granted in recent cases where authorities are satisfied that it aligns with the intent of the Foreign Exchange Management Act (FEMA). In such instances, the RBI may cap the compounding amount at Rs 2 lakh,” Bhuta told ET.

Under the LRS framework, resident individuals can remit up to $250,000 annually for overseas investments, including property purchases and financial assets. Some buyers may have opted to use credit cards in order to preserve their LRS limits—unaware of the regulatory implications, ET noted.