Selling ancestral or inherited real estate in India while residing in the United States triggers dual taxation rules in both jurisdictions. Without coordinated cross-border tax strategy, filers risk double taxation and compliance hurdles with the Reserve Bank of India (RBI).
1. The U.S. "Stepped-Up Basis" Advantage (IRC § 1014)
Under U.S. tax law, when you inherit real property, your cost basis is "stepped up" to the Fair Market Value (FMV) on the decedent's date of death. If you sell the property shortly after inheriting it at or near the inherited FMV, your taxable capital gain in the U.S. may be zero or negligible!
2. Indian Long-Term Capital Gains (LTCG) & TDS
In India, real estate held over 24 months is taxed as Long-Term Capital Gains. Indian buyers are legally mandated to deduct Tax Deducted at Source (TDS) under Section 195—often at 20% plus surcharge and cess on the entire sale consideration unless a Lower TDS Certificate (Form 13) is obtained from the Indian Income Tax Department.
3. Foreign Tax Credit (Form 1116) to Eliminate Double Tax
The U.S.–India Double Tax Avoidance Agreement (DTAA) permits you to claim the taxes paid in India as a Foreign Tax Credit on IRS Form 1116, offsetting dollar-for-dollar your U.S. federal capital gains liability on the transaction.
4. Repatriating Funds to the U.S. (Form 15CA & 15CB)
Under RBI regulations, remitting sale proceeds from an NRO account to your U.S. account requires chartered accountant certification via Form 15CB and electronic submission of Form 15CA to ensure all Indian tax obligations are cleared.