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Several Indians are finding themselves in a tricky spot after using their credit cards to buy property in Dubai, reported The Economic Times. What seemed like an easy way is leading to legal and tax problems back home.
Some homebuyers either checked the payment links shared by Dubai-based builders or swiped credit cards when they were visiting Dubai. They found it hassle-free without any paperwork and no visits to the bank. And they believed they could circumvent paying 20 percent tax collected at source (TCS) on overseas remittances.
But what is unknown is that credit cards, even international ones, are meant only for current account transactions, such as hotel bookings, movies, or buying books, not for capital account transactions, such as buying an asset.
While no law bans the use of credit cards for buying assets abroad, experts believe that it violates the RBI’s guidelines.
Now worried over the Income Tax crackdown or the Enforcement Directorate, some of these buyers are rushing to fix their mistake. They are now remitting money properly under the Liberalised Remittance Scheme (LRS) and asking developers to cancel the earlier credit card payments. Once the new payment is made through the right banking channels, the builder refunds the earlier amount.
What is LRS?
As per the Reserve Bank of India (RBI) rules, an Indian resident can send up to $250,000 a year overseas for buying assets or for personal use under the LRS. However, the payment must route through proper banking channels, and the individual must have held an account with the bank for a minimum of one year before remittance for capital account transactions.
A credit card, when used to pay for property, does not count under LRS and is considered a violation.
Regardless of the fact whether RBI allows such transactions, a property bought overseas is seen as a transaction under LRS for section 206C(1G)(a) of the Income Tax Act, and is therefore subject to a 20 per cent
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