If you are a US citizen selling inherited property in India, you owe capital gains tax in both countries, you must move the money out through a specific bank channel the Reserve Bank of India controls, and you have at least three separate IRS forms to file on top of your regular return. India taxes the gain at the sale and the buyer withholds it before you see the proceeds; the US taxes the gain again but lets you credit the Indian tax and gives you a stepped-up basis that usually shrinks the US number. The traps are mostly on the US side, where informational forms nobody warns you about carry penalties in the tens of thousands of dollars.
Here is what the process actually requires, in the order it comes at you.
Report the Inheritance to the IRS Before You Sell
The moment you inherit, an IRS obligation attaches, whether or not you ever sell. If you receive more than $100,000 from a foreign estate during a tax year, you must file Form 3520 with your federal return for that year. It is due April 15, extendable with your income tax return.1Internal Revenue Service. Instructions for Form 3520
Form 3520 is informational. You do not owe tax on the inheritance itself. But missing it costs 5% of the inheritance value per month, capped at 25%.1Internal Revenue Service. Instructions for Form 3520 On a $400,000 flat, that ceiling is $100,000. The IRS sends no reminder, and most people inheriting Indian property have never heard of the form.
The $100,000 threshold aggregates all gifts and bequests from foreign persons during the year. For inherited property, the fair market value at the time you receive it is what counts. If you already missed the filing for a prior year, file late with a reasonable-cause statement; the penalty stops accruing when the form is submitted.
Get Clean Title in India
No buyer will sign a sale deed until you can prove you own the property. Depending on the state and the deceased’s personal law, that means a probated will, a succession certificate, or a letter of administration from an Indian court. Probate can run from a few months to well over a year, longer if a family member contests. Indian legal counsel is not optional; the rules vary by state.
Once the court order is in hand, get the local land records mutated into your name. You file with the municipal or revenue office along with the death certificate, the court document, and identity proof. The revenue officer verifies, may inspect, and issues an updated land record. Mutation does not create ownership on its own, but buyers’ lawyers check for it in due diligence and its absence either kills the deal or knocks down the price.
If you cannot travel to India for the signing, execute a General Power of Attorney to someone you trust there. The GPA must be notarized and apostilled in the United States, then registered in India before your representative can sign the sale deed. The deed itself is executed at the Sub-Registrar’s office, where stamp duty and registration fees, typically 5% to 10% of market value depending on the state, are paid.
How India Taxes the Sale
India does not give inherited property a stepped-up basis. Your cost basis for Indian tax is what the original owner paid, which for property bought decades ago is often a tiny fraction of today’s value. This is why the Indian gain is usually much larger than the US gain on the same sale.
If the holding period (measured from the original owner’s acquisition date, not from the date you inherited) exceeds 24 months, the gain is long-term. Following the 2024 Union Budget, long-term capital gains on property are taxed at 12.5% without indexation. For property acquired before July 23, 2024, you can choose between the flat 12.5% or the older 20% rate with indexation, whichever is lower. Indexation adjusts the original purchase price upward using the government’s Cost Inflation Index, which for fiscal 2025-26 is 376. For a property bought decades ago, the indexed 20% calculation often wins; your Indian Chartered Accountant should run both.
The Buyer Withholds Tax Before You Get Paid
India collects the tax upfront through Tax Deducted at Source (TDS). The buyer is legally required to withhold before paying you. For long-term gains, TDS runs 12.5% of the gain plus surcharge and cess, producing an effective rate that can range from roughly 13% to over 28% depending on the sale price.
If you do nothing, the buyer may withhold on the full sale price rather than on the computed gain, locking up far more of your money than the tax actually owed. To prevent that, apply to the Indian Income Tax Department under Section 197 (Form 13) for a certificate specifying a lower TDS amount tied to your actual computed gain. You will need the sale agreement, acquisition documents, PAN, bank statements, and prior tax returns. Start the application as soon as you have a signed agreement, because approval takes time.
Indian law does offer exemptions under Section 54 (reinvest in another Indian residential property) and Section 54EC (invest up to ₹50 lakhs in specified bonds within six months). Both keep capital tied up in India, so they rarely suit a US-based seller whose goal is to bring the money home. Worth asking your Indian CA about, then usually setting aside.
Getting the Money to the United States
Repatriation is governed by the Foreign Exchange Management Act and enforced by the Reserve Bank of India.2Reserve Bank of India. Master Circular on Remittance Facilities for Non-Resident Indians The buyer cannot wire the proceeds directly to your US account. They must be deposited into a Non-Resident Ordinary (NRO) bank account in India first. If you do not have one, open it before the sale closes.
Interest on the NRO balance is taxable in India, and the bank withholds TDS on that interest at 30% plus surcharge and cess for non-residents. The longer proceeds sit there, the more tax leaks.
The $1 Million Annual Cap
The RBI caps NRO repatriation at $1 million per financial year (April through March), and this covers all remittances from the account, including property sale proceeds.3Reserve Bank of India. Master Circular on Acquisition and Transfer of Immovable Property in India Net proceeds above $1 million must be split across financial years or moved with special RBI permission. This cap is a FEMA rule for non-residents; it is not the Liberalised Remittance Scheme, which applies to residents.
Forms 15CA and 15CB
Before the bank initiates the wire, two forms are required. A Chartered Accountant issues Form 15CB, certifying the nature of the payment, the applicable tax, and that Indian tax has been paid or withheld. You then electronically file Form 15CA with the Indian Income Tax Department using the acknowledgment number from the CA’s 15CB.4Income Tax Department. Form 15CB FAQs Without both, the bank will not release the funds.
The bank also wants the registered sale deed, proof of inheritance, and the CA’s capital gain computation. Plan on four to eight weeks from document submission to funds landing in your US account, depending on the bank’s compliance review. Start the CA certification the moment the sale closes.
How the US Taxes the Same Sale
The US calculates the gain from a completely different starting point, and that difference is almost always in your favor.
Stepped-Up Basis
Under Section 1014 of the Internal Revenue Code, inherited property gets a basis equal to its fair market value on the date the previous owner died.5Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent A flat your parent bought in 1990 for ₹5 lakhs and worth ₹2 crores at their death in 2022 gives you a US basis of ₹2 crores. India will tax you on the gain measured from ₹5 lakhs; the US will tax you on the gain measured from ₹2 crores.
You need a formal appraisal from a certified Indian valuer as of the date of death. Without a credible, contemporaneous valuation, you have no defense if the IRS questions the basis.
Currency Conversion
Everything on your US return is in dollars. Convert the rupee fair market value to dollars at the exchange rate on the date of death; that is your USD basis. Convert the sale proceeds to dollars at the exchange rate on the sale date. Subtract selling expenses (brokerage, legal fees). The remainder is your US capital gain. There is no separate currency gain line; exchange rate movement folds into the capital gain figure.
Long-Term Treatment
Inherited property is automatically long-term for US purposes regardless of how soon you sell.6Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property Long-term rates are 0% below $49,450 of taxable income for single filers in 2026, 15% up to $545,500, and 20% above that. The 3.8% Net Investment Income Tax may also apply if modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly.
If You Rented the Property
If you ever rented the property and claimed depreciation on your US returns, depreciation is recaptured at sale at a maximum 25% rate on Form 4797, separate from the regular gain on Schedule D.7Internal Revenue Service. 2025 Instructions for Form 4797 If the property was never income-producing, this does not apply.
Avoiding Double Tax with the Foreign Tax Credit
India and the US will both tax the same gain under their own rules.8Internal Revenue Service. Tax Convention With the Republic of India The Foreign Tax Credit on Form 1116 is what stops you paying twice.9Internal Revenue Service. Foreign Tax Credit – Choosing to Take Credit or Deduction
Every dollar of qualifying Indian income tax reduces your US tax dollar for dollar, capped at the US tax attributable to the foreign-source income.10Internal Revenue Service. Instructions for Form 1116 (2025) Because India’s gain is calculated from the original owner’s basis and the US gain from a much higher stepped-up basis, Indian tax on the sale is usually the bigger of the two. The credit zeroes out your US tax on the gain but does not refund the excess Indian tax.
Unused credit is not lost. You can carry it back one year and forward up to ten to offset US tax on other foreign-source income.11eCFR. 26 CFR 1.904-2 – Carryback and Carryover of Unused Foreign Tax If you have no other foreign income, the carryforward may expire, but claim it anyway in case your situation changes.
You can deduct foreign taxes instead of crediting them. The deduction almost always produces a worse result for a property sale, but have your preparer run both.
The Other US Forms You Must File
The gain on Schedule D is only one piece of the US filing package. The NRO account and the size of the transaction usually trigger several more.
Schedule D and Form 8949
Report the gain on Schedule D.12Internal Revenue Service. About Schedule D (Form 1040), Capital Gains and Losses Complete Form 8949 with the dates, proceeds, and basis that feed the Schedule D summary.13Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Attach Form 1116 for the credit and, if depreciation applies, Form 4797.
FBAR (FinCEN Form 114)
If your foreign financial accounts together exceed $10,000 at any point in the calendar year, you file an FBAR with FinCEN.14FinCEN. Report Foreign Bank and Financial Accounts Your NRO account qualifies, and once sale proceeds land there, you are almost certainly over the threshold.
The FBAR is filed electronically through the BSA E-Filing system, not with your tax return. Due April 15, automatic extension to October 15. Miss October 15 and civil penalties for non-willful violations can exceed $16,000 per account per year; willful violations carry the greater of roughly $165,000 or 50% of the account balance. The compliance effort is small; the penalty for skipping is not.
Form 8938 (FATCA)
Form 8938 is separate from the FBAR and files with your tax return. The NRO account is a specified foreign financial asset.15Internal Revenue Service. FATCA Information for Individuals Thresholds depend on filing status and whether you live in the US:
- Single, living in the US: total value over $50,000 on the last day of the year, or over $75,000 at any time during the year.
- Married filing jointly, living in the US: over $100,000 year-end, or over $150,000 at any time.
- Living abroad: $200,000/$300,000 for single filers, $400,000/$600,000 for joint filers.
You file if you meet either the year-end or any-time test for your status.16Internal Revenue Service. Instructions for Form 8938 Failure to file is $10,000, plus another $10,000 for each 30-day period the failure continues after IRS notice, up to an additional $50,000.17Internal Revenue Service. Instructions for Form 8938 FBAR and Form 8938 overlap but do not substitute for each other; if both apply, file both.
Typical Sequence and Timing
Inheritance to dollars in your US account usually runs one to three years, longer if probate is contested. The order that tends to work:
- Year of inheritance: file Form 3520 if the value exceeded $100,000. Start Indian probate or succession proceedings. Get a fair market value appraisal dated as of the death for your US basis.
- Pre-sale: complete mutation. Open the NRO account. Execute the apostilled GPA if you will not be present. Engage an Indian CA and a US preparer with cross-border experience.
- Sale year: apply for the Section 197 lower TDS certificate before closing. Register the sale deed. Have the CA prepare Form 15CB; file Form 15CA. Initiate the bank repatriation.
- US filing: report the gain on Schedule D and Form 8949, claim the Foreign Tax Credit on Form 1116, file the FBAR by October 15 for any year the NRO account exceeded $10,000, and file Form 8938 with your return if the thresholds are met.
The most expensive mistake in this whole process is treating it as an Indian problem. Most people concentrate on the sale and the wire, then discover the US informational forms after the deadlines have passed. Bring a US tax professional in at the inheritance stage, not at filing time.