USA NRIs Buying or Selling Property in India — Indian & US Tax and Reporting Guide

If you are a US citizen, green card holder, or US tax resident with Indian roots, buying or selling property in India is a two-country exercise. India taxes and reports the transaction under its own rules, and the US simultaneously taxes your worldwide income and expects several separate disclosures — even when no tax is ultimately owed to the IRS. This guide pulls both sides together so you can plan the whole transaction, not just half of it.

Scope note: "US person" in this article means anyone the IRS treats as a US tax resident — US citizens (wherever they live), lawful permanent residents (green card holders), and foreign nationals who meet the Substantial Presence Test. All of them file Form 1040 on worldwide income.

The Big Picture: Two Tax Systems, One Transaction

India taxes real estate income and gains on the source principle — property situated in India is taxable in India regardless of who owns it. The US taxes its residents on worldwide income, so the same rental income and the same capital gain appear on your US return as well.

The India–US Double Taxation Avoidance Agreement (DTAA), specifically Article 6, gives India the primary right to tax income from Indian immovable property. The US then taxes the same income but allows a Foreign Tax Credit for the Indian tax paid, so you are not taxed twice on the same dollar of income or gain.

Part 1 — Indian Side (Brief Recap)

The Indian mechanics are the same as for any non-resident. See the combined buying and selling guide for the full detail. In short:

Buying: NRIs and OCIs can freely buy residential and commercial property. No agricultural land, plantations, or farmhouses. Fund the purchase from NRE/NRO/FCNR accounts or by inward remittance.
Selling: Buyer must deduct TDS. Post-July 2024, long-term gains are taxed at 12.5% (generally without indexation); short-term gains at slab rate (effectively 30%+). Apply for a Lower TDS Certificate (Form 13) to avoid over-deduction on the gross sale price.
Exemptions under Sections 54, 54EC, 54F remain available.
Repatriation of sale proceeds via NRO account, capped at USD 1 million per financial year, using Forms 15CA/15CB.

Everything from here on is the US side.

Part 2 — US Reporting While You Own the Property

The Property Itself Is Not Reportable

Good news first. Foreign real estate held directly as an individual is not a "specified foreign financial asset." That means:

FBAR (FinCEN Form 114) — not required for the real estate itself
Form 8938 (FATCA Statement of Specified Foreign Financial Assets) — not required for the real estate itself

This applies even if the property is rented out. This is a frequent source of panic that the existing FATCA and Indian property article addresses in more depth.

The one exception: if you hold the property through a foreign entity — an Indian private limited company, LLP, partnership, or trust — then your interest in that entity is a specified foreign financial asset and must be reported on Form 8938 (and often triggers additional regimes like CFC/PFIC). Avoid holding Indian real estate in an Indian company unless you have a clear commercial reason and have taken US tax advice.

The Bank Accounts Are Reportable

Even though the real estate is not reportable, the accounts you use to buy, hold, rent, and eventually sell it are:

NRE, NRO, and FCNR accounts — foreign financial accounts, fully within FBAR and Form 8938 scope
Any Indian brokerage, mutual fund, or custody account — also within scope

FBAR thresholds: file if the aggregate highest balance across all foreign accounts exceeded USD 10,000 at any point during the calendar year. Filed separately from your tax return, due April 15 with an automatic extension to October 15.

Form 8938 thresholds (higher and depend on filing status and whether you live abroad):

US resident, single: USD 50,000 end-of-year or USD 75,000 at any time
US resident, MFJ: USD 100,000 / USD 150,000
Living abroad, single: USD 200,000 / USD 300,000
Living abroad, MFJ: USD 400,000 / USD 600,000

When a large sale happens and the proceeds sit in an NRO account awaiting repatriation, the balance can easily cross these thresholds — plan for that reporting year.

Form 3520 for Gifts and Inheritances from India

If family in India gifts you the property, or if you inherit it, you may not owe US tax — but you likely have a reporting obligation under Form 3520:

Gifts from non-US individuals: report if aggregate gifts from the same donor (or related donors) exceed USD 100,000 in a year
Foreign inheritances: same USD 100,000 threshold
Gifts from foreign corporations/partnerships: much lower threshold (around USD 19,570 for 2026)

Penalties for non-filing are severe — up to 25% of the unreported amount. The form is informational only; no tax is owed just because you received an inheritance.

Part 3 — US Reporting of Rental Income

If you rent out the Indian property, you have rental income in both countries.

Indian Side (Summary)

Rental income is taxed in India under "Income from House Property"
30% standard deduction plus municipal taxes paid
Home-loan interest deductible (subject to caps on self-occupied)
Tenant must deduct TDS under Section 195 before paying rent to an NRI — typically 30% plus surcharge and cess on the gross rent. Apply for a Lower TDS Certificate to bring this down.

US Side: Schedule E

On your US return, the same rental goes on Schedule E (Supplemental Income and Loss):

Gross rent translated to USD using a reasonable exchange rate (monthly average or annual average is generally acceptable; apply consistently)
Deductible expenses in USD: property taxes, management fees, repairs, insurance, interest on loan, travel to the property (limited), depreciation
Depreciation: foreign residential rental property placed in service after 2017 depreciates over 30 years straight-line (under TCJA — previously 40 years). You must take depreciation whether you want to or not; when you eventually sell, the IRS recaptures it as if you had.
Losses may be limited by the passive activity loss rules

Foreign Tax Credit on Indian Tax Paid

File Form 1116 to claim credit for the Indian income tax paid on the rental. Rental income falls in the passive category. You cannot claim both the Foreign Tax Credit and deduct the tax as an expense — pick one (FTC is almost always better).

Part 4 — When You Sell: US Capital Gains Mechanics

This is where US rules diverge most sharply from Indian rules. You must run the US calculation from scratch — you cannot use the Indian computation.

Translate Everything to USD at the Correct Exchange Rates

For the US return, basis and sale price must be in USD:

Cost basis: purchase price translated at the USD/INR spot rate on the date of purchase, plus capital improvements translated at the rates on the dates they were made
Sale price: sale consideration translated at the USD/INR spot rate on the date of sale
Selling expenses: translated at the rate on their respective dates

Because the INR has generally weakened against the USD over the decades, the USD gain is typically smaller than the INR gain — and occasionally a gain in INR becomes a loss in USD. Run both numbers; they are almost never the same.

Long-Term vs Short-Term in the US

Long-term in the US = held more than 1 year (not 2 years, as in India)
Long-term capital gains rates: 0%, 15%, or 20% depending on your US taxable income bracket
Net Investment Income Tax (NIIT): additional 3.8% if your modified AGI exceeds USD 200,000 (single) / USD 250,000 (MFJ)
Short-term gains are taxed at your ordinary income rate (up to 37% federal)

Depreciation Recapture

If you rented the property, any depreciation you claimed (or were required to claim) is "recaptured" when you sell. In the US, this is taxed as unrecaptured Section 1250 gain at a maximum federal rate of 25% — even if your overall gain is otherwise zero or small.

Section 121 Principal Residence Exclusion

If the Indian property was your principal residence for at least 2 out of the 5 years before sale, you may be able to exclude USD 250,000 of gain (single) or USD 500,000 (MFJ). This is possible if you lived in the Indian property while still a US tax resident — unusual but not rare for OCIs who split time between countries.

Foreign Tax Credit on Indian Capital Gains Tax

The Indian 12.5% LTCG tax (plus surcharge and cess) becomes a foreign tax credit on Form 1116. Capital gains on real estate are generally in the passive category, but high-tax exceptions and resourcing rules under the DTAA can apply — this is an area where a qualified cross-border CPA earns their fee. Because the Indian rate (12.5% plus cess) can exceed the US long-term rate (often 15% or 20%), the FTC usually eliminates the US tax on the gain, but not always the NIIT.

Reporting Forms When You Sell

Schedule D and Form 8949 — report the capital gain
Form 4797 — if it was a rental property (depreciation recapture)
Form 1116 — foreign tax credit for Indian tax paid
Form 8938 — during the years sale proceeds sit in Indian bank accounts and cross thresholds
FBAR — same, for the bank-account side

Part 5 — Repatriating the Proceeds to the US

From India's perspective, repatriation is governed by FEMA, needs Forms 15CA/15CB, and is capped at USD 1 million per financial year from the NRO account. Detail in the transfer of funds guide.

From the US perspective, receiving your own money from India is not a taxable event. You already paid (or will pay) tax on the gain in the year of sale, regardless of when the cash moves. But:

Wire transfers above USD 10,000 from an Indian bank trigger the bank's BSA reporting, not a personal filing
Form 8300 applies only to cash received in a trade or business, not to bank wires
The NRO/NRE balances are still reportable on FBAR and (possibly) Form 8938 until fully transferred
If the money is held in foreign currency and appreciates before conversion, you may have a small Section 988 foreign currency gain on conversion — usually de minimis but not zero

Part 6 — State Tax Traps

Federal rules are only half the story. Your US state may tax the Indian gain as well, and several populous states do not allow a credit for foreign taxes paid:

California, New York, New Jersey, Massachusetts — tax worldwide income of residents, no foreign tax credit at the state level in most cases
Net result: you may end up paying India tax + US federal NIIT + full state tax on the same gain

If you are planning a large Indian property sale and have flexibility on timing, check the state angle before choosing the year of sale — moving to a no-income-tax state (Florida, Texas, Washington) before the transaction can save a substantial amount, provided the move is genuine and well-documented.

Part 7 — Practical Planning Tips

Keep USD-based records from day one. Save the USD/INR exchange rate from the Federal Reserve H.10 release or the IRS yearly average table, for every purchase, improvement, rent receipt, and tax payment. Reconstructing 20-year-old exchange rates when you sell is painful.
Track depreciation even if no one asks you to. The IRS treats you as having claimed depreciation whether you did or not. Not claiming it does not avoid recapture — it only forfeits the deductions you were entitled to.
Run the US capital gains number before you sell. The Indian number does not tell you what you will owe in the US. Currency movement alone can swing the US result materially.
Apply for the Indian Lower TDS Certificate early. Indian TDS flows through as a Foreign Tax Credit, but over-deducted cash stuck in India for 12–18 months is still a real cost.
Coordinate the year of sale. Time the transaction to a year when your US marginal rate is lower, or the Indian financial year where your Indian exemption/investment strategy works — both if possible.
Watch the Form 8938 thresholds the year of sale. Sale proceeds parked in NRO will often push you over a threshold even if your normal year looks fine.
Do not hold Indian real estate through an Indian company unless you have a specific commercial reason and cross-border tax advice. The CFC, Subpart F, GILTI, and PFIC rules can make an Indian corporate holding structure dramatically more expensive than direct ownership.
Keep gift deeds and succession documents in order. Indian inheritance law is the easy side; it is the US Form 3520 filing and later basis substantiation that most US-NRIs neglect.

Quick Checklist — US Side, Year by Year

Year of purchase

Record USD basis on purchase date
File FBAR / Form 8938 if Indian account balances cross thresholds while funding the purchase
Form 3520 if any down payment came as a gift from a non-US person over the threshold

Each year you own (and rent) the property

Schedule E on Form 1040 with USD-translated income and expenses
Depreciation taken (30-year straight-line, residential rental)
Form 1116 for Indian tax credit on rental income
FBAR and Form 8938 for Indian bank accounts above thresholds

Year of sale

Schedule D / Form 8949 for the capital gain in USD
Form 4797 and Section 1250 recapture if it was a rental
Form 1116 for Indian tax on the gain (including TDS)
Section 121 exclusion if the principal-residence test is met
FBAR and Form 8938 — balances often spike this year from sale proceeds
State return — check whether state allows foreign tax credit

Repatriation

Indian side: Forms 15CA and 15CB; sale deed and CA computation to the bank
US side: no filing triggered by the wire itself, but account balances continue to be reported until drawn down

Final Word

Indian property in the hands of a US resident is one of the most documentation-intensive things on an international tax return. The rules are not hostile — FATCA does not require you to report the property, the DTAA prevents literal double taxation, and FTC mechanics generally work. But the reporting is unforgiving and penalties for missed filings (especially FBAR, Form 8938, and Form 3520) are disproportionate to the tax at stake.

Engage a cross-border CPA or EA who routinely handles India–US returns — not just an Indian CA or a domestic US accountant working alone. The combined perspective pays for itself the first year you do it correctly.