Selling Indian Property from the US: Complete Tax Guide

Selling property in India while living in the US on an H-1B visa creates tax obligations in both countries. Understanding the reporting requirements and how to avoid double taxation is critical to keeping your proceeds intact.

Indian Capital Gains Tax on Property Sales for NRIs

India taxes property capital gains differently based on the holding period:

• Long-term (held over 2 years): Taxed at 12.5% without indexation (effective July 23, 2024 per Finance Act 2024). Prior to July 23, 2024, LTCG was taxed at 20% with indexation benefit under the Cost Inflation Index (CII).
• Short-term (held under 2 years): Taxed at your applicable slab rate (up to 30% + surcharge + cess).

The buyer is required to deduct TDS under Section 195: 12.5% for LTCG and 30% for STCG. You can apply for a lower TDS certificate from the Indian tax authority if the actual tax liability is lower than the standard TDS rate.

US Tax Reporting: Schedule D and Form 8949

On your U.S. return, report the property sale on Form 8949 and Schedule D. Key steps:

• Cost basis: Convert the purchase price from INR to USD using the exchange rate on the purchase date — not the current rate.
• Sale proceeds: Convert from INR to USD using the exchange rate on the sale date.
• Holding period: Use the U.S. definition — long-term is more than 1 year (not 2 years as in India).
• No indexation: The U.S. does not allow the Indian Cost Inflation Index adjustment. Your basis is the actual purchase price in USD.

TDS on Property Sale: Rates and Section 195 Rules

When an NRI sells property in India, the buyer must deduct TDS and deposit it with the Indian government before paying the seller. The applicable rates:

• LTCG: 12.5% TDS (+ surcharge + cess, effectively ~14.95%)
• STCG: 30% TDS (+ surcharge + cess, effectively ~34.32%)

If the TDS exceeds your actual Indian tax liability (common after Section 54/54EC exemptions in India), you can file an Indian tax return to claim a refund of the excess TDS.

Claiming Foreign Tax Credit to Avoid Double Taxation

The Indian capital gains tax (whether paid through TDS or direct tax payment) is creditable on your U.S. return via Form 1116. Convert the Indian tax paid from INR to USD using the exchange rate on the date of payment.

Important: If you claim Section 54 or 54EC exemptions in India (reducing your Indian tax), your FTC is limited to the Indian tax you actually paid — not the tax that would have been owed without the exemption.

India Section 54/54EC Exemptions and US Implications

India offers capital gains exemptions that have no effect on your U.S. tax:

• Section 54: Exemption for reinvesting LTCG in a new residential property within 2-3 years. This reduces your Indian tax but does not reduce your U.S. capital gain. The full gain is reportable in the U.S.
• Section 54EC: Exemption for investing up to Rs 50 lakhs in specified capital gains bonds (NHAI, REC) within 6 months. Again, this is an Indian provision only — no U.S. impact.

These exemptions reduce your Indian tax liability, which in turn reduces the FTC available on Form 1116. You may end up paying more net U.S. tax on the property sale.

Repatriation of Sale Proceeds: FEMA and Tax Considerations

Transferring property sale proceeds from India to the US involves FEMA (Foreign Exchange Management Act) regulations:

• NRIs can repatriate up to $1 million per financial year from NRO accounts, subject to producing a CA certificate and tax clearance.
• Sale proceeds must first be deposited into an NRO account. After obtaining Form 15CA/15CB (tax clearance certificates), funds can be transferred to your U.S. bank.
• The exchange rate on the repatriation date does not affect your U.S. capital gains calculation — the gain was already calculated using purchase and sale date rates.