The Enforcement Directorate (ED) has flagged cases in which Indians used credit cards to purchase property overseas, particularly in Dubai, raising questions about compliance with foreign exchange regulations and other regulatory norms.
The Economic Times newspaper reported on March 23 that The ED has served notices to at least three persons. for using their credit cards to pay the initial deposit or for clicking payment links sent by UAE developers.
From a personal finance standpoint, this trend highlights a key concern: Is it wise to use credit cards for high-value transactions, such as property purchases or EMIs, given the steep interest rates and the risk of incurring costly debt? While convenient, relying on credit cards for large payments can quickly become expensive if balances are not cleared on time.
Credit cards are not meant to buy property
Credit cards are primarily meant for short-term expenses and offer unsecured credit for a limited period. They are not a substitute for long-term loans such as home loans, especially for high-value purchases like real estate.
In practice, real estate purchases in India are generally not made through credit cards, as developers and sellers usually do not accept card payments for the full property value due to high processing charges and transaction limits.
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“Even where partial payment is possible, using a credit card for such a large purchase is usually not financially prudent because any unpaid balance can attract very high interest charges. Therefore, for high-ticket transactions like property purchases, structured financing such as a home loan remains the more appropriate option,” says Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution.
Credit cards and FEMA compliance
Under India’s foreign exchange framework, overseas property purchases are permitted only through authorised channels under the Liberalised Remittance Scheme (LRS), which currently allows individuals to remit up to $250,000 per financial year for permitted purposes. These transactions must be routed through authorised dealer banks with proper reporting and documentation.
“Using a credit card to directly purchase overseas real estate can fall into a grey or non-compliant area. Credit cards are not intended as a primary instrument for capital account transactions, such as property acquisition. Moreover, LRS compliance requires traceability, purpose declaration, and adherence to limits, which may not be adequately captured in a credit card transaction,” says Shikher Upadhyay, Senior Associate, Foresight Law Offices.
There is also regulatory sensitivity around using credit cards to bypass LRS limits or reporting requirements. “Even though recent clarifications have aligned certain credit card spends with LRS reporting, using them for high-value capital transactions like property purchases could invite scrutiny for non-compliance with FEMA and RBI guidelines,” says Upadhyay.
Property buying through credit cards: Personal finance implications
In most cases, using a credit card to buy a property is not financially prudent. Credit cards are designed for short-term liquidity and convenience, not for funding large capital assets like real estate.
Interest rates on credit cards are significantly higher than traditional financing options such as home loans. “Even if a card offers an EMI conversion, the effective cost, including processing fees and GST, is usually far higher than secured borrowing. Any delay or partial payment can quickly escalate the cost,” says Upadhyay.
Individuals should look beyond the headline EMI amount and evaluate the effective annualised cost. Credit card EMIs often carry interest rates of 18-36 per cent per annum, along with processing fees and taxes.
“Missing even a single payment can trigger penal interest, late fees, and impact credit scores, further increasing the overall cost. “A clear understanding of compounding, tenure, and penalties is essential before opting for such arrangements,” says Upadhyay.
One should be very careful to clear credit card dues as early as possible, especially if the expense relates to EMIs or other large purchases. “Making it a regular habit to pay EMIs through credit cards can lead to a debt trap and may also affect the borrower’s credit profile, as repeated high credit utilisation may signal repayment stress to lenders,” says Kapoor.
The only narrow scenario in which a card may be used is for a small token payment or booking amount, provided it is repaid immediately during the interest-free period and does not incur additional charges. Beyond that, it becomes an expensive and risky financing tool.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
