The Enforcement Directorate (ED) has reportedly issued notices to a few people from India who used their credit cards to buy properties in Dubai.
The notices were served to at least three individuals in February. The central agency has questioned its source of funds for the property deals in Dubai, sources told The Economic Times.
These people are believed to have either swiped their international credit cards (ICCs) while visiting the Emirates to pay the initial deposit or clicked on the payment links that were sent to them by the UAE developers. Indian laws do not allow borrowing money to buy property abroad, since credit card transactions are like short-term loans. Foreign exchange regulations does not allow people to borrow to buy foreign properties.
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Under the liberalised remittance scheme (LTS) of the Reserve Bank of India (RBI), resident individuals buy stocks and properties abroad after transferring tax paid funds via official banking channels.
Being stunned by the ED notices, the individuals are now seeking a condonation from the central agency. They are required to correct the transaction and pay fine. In a few cases, they even need to absorb the loss of selling the property in a weak market.
Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Co, said the ED notices have been served to those who might have "unknowingly used credit cards" to buy properties in UAE.
"They should approach RBI to regularise the mode of payment. RBI may take a lenient view as the money is legitimate even if the mode of payment is wrong. Many a time resident Indians do cross-border purchases without knowing the law or consulting CAs," The Economic Times quoted Shah as saying.
These individuals are now required to complete the administrative process and apply for compounding, wherein they admit the violation and look forward to settle the contravention by paying a penalty. In some cases, this might result in reversing the original payment.
Shah stated that the regularisation process might "involve remitting fresh funds through banks and instructing the builder to send back the amount that was paid with credit card. In certain circumstances, RBI may ask buyers to sell the property and bring back funds".
The process requires individuals to arrange funds, without borrowing them, and remitting dollars when rupee is at a new low. The buyer could have to sell the property if failed to do so in order to unwind the transaction.
Meanwhile, bankers believe the regulator might not insist on a reversal, since the funds did not move via the hawala network.
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"Using international credit cards (ICCs) for such purchases falls outside the permitted structure since acquisition of overseas property is treated as a 'capital account' transaction. Where such payments have already been made, individuals may need to examine regularisation options, including the RBI's compounding mechanism," Moin Ladha, partner at Khaitan & Co, told The Economic Times.
ICCs are mainly for current account transactions, such as buying books and booking hotels.
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