Indian Property Buyers in Dubai Encounter Regulatory Challenges

Indian nationals who purchased properties in Dubai using international credit cards (ICCs) are now facing significant regulatory hurdles. This payment method, often utilized through builder-shared links or during visits to the UAE, was initially seen as a straightforward way to make down payments and instalments, bypassing traditional bank paperwork and potentially avoiding the 20% tax-collected-at-source (TCS).

The Misuse of International Credit Cards

However, it appears that these buyers may have misused ICCs, which are intended for current account transactions such as purchasing books, digital content, and hotel bookings, rather than for capital account transactions like property acquisition. While there's no explicit regulation against using ICCs for overseas property purchases, banking professionals interpret RBI notifications as restricting such practices.

Seeking Solutions Amidst Scrutiny

In response to scrutiny from income tax and enforcement authorities, these investors are now seeking corrective measures. Plans include remitting funds through RBI's Liberalised Remittance Scheme (LRS) and canceling previous credit card transactions under the guise of errors. They anticipate refunds from builders, with property disposal as a last resort.

Expert Opinions on Regularizing Payments

Rajesh Shah, a partner at the CA firm Jayantilal Thakkar & Co, suggests that the RBI should adopt a lenient view towards these transactions, arguing that while the mode of payment was incorrect, the payments themselves were legitimate. He recommends compounding the contravention rather than requiring the unwinding of transactions or the sale of properties.

Understanding LRS and ICC Usage

The LRS allows resident individuals to make annual transfers of up to $250,000 for overseas assets and online purchases. Notably, ICC usage within India for foreign purchases counts towards LRS limits, whereas overseas travel expenses are exempt. However, property purchases via ICCs remain non-compliant, regardless of where the transaction occurs.

Legal Perspectives on Overseas Property Acquisition

Moin Ladha, a partner at Khaitan & Co, highlights that overseas property purchases are permitted under specific conditions, including inheritance, gift, funds in a resident foreign currency account, and remittance under the LRS. Since general permission does not cover property acquisition via ICCs, such transactions require regularization, possibly through post facto approval or property sale, followed by compounding any non-compliance with the RBI.

Tax Implications Regardless of RBI's Stance

Ashish Karundia, founder of Ashish Karundia & Co, notes that overseas property purchases are subject to a 20% TCS under section 206C(1G)(a) of the I-T Act, irrespective of the RBI's position on the transaction methods.