US NRI selling India property: India LTCG, US 1040 reporting and DTAA double-tax relief
US citizens and Green Card holders selling Indian property face tax in two countries. India taxes the LTCG at 12.5% (post-Budget 2024) with a buyer TDS of 12.5%. The US taxes the same gain as a capital gain on Form 1040 Schedule D (at 0/15/20% long-term rates). The US Foreign Tax Credit via Form 1116 credits India LTCG tax paid against the US tax on the same gain, preventing most double taxation. Both FBAR and FATCA reporting apply to the NRO account holding sale proceeds.
India LTCG at 12.5% is creditable against US capital gains tax via Form 1116
When a US NRI sells Indian property: India charges LTCG at 12.5% (property held 24+ months) and the buyer deducts TDS at 12.5% of sale consideration. You must also report the gain on US 1040 Schedule D as a long-term capital gain (taxed at 0/15/20% depending on your income). The India LTCG tax paid is claimed as a Foreign Tax Credit on Form 1116, offsetting the US tax on the same gain. Since India (12.5%) and US (15% or 20%) rates are similar, the US may owe additional tax above the FTC credit.
Key points
- Two-country tax on the same gain — India LTCG (12.5%) + buyer TDS applies first. US 1040 Schedule D reports the same gain — India tax credited via Form 1116.
- Currency conversion: gain must be in USD on 1040 — Calculate the USD gain using IRS-acceptable exchange rates at purchase and sale dates. The USD gain (not INR gain) determines US tax.
- FBAR/FATCA: NRO account holding sale proceeds — NRO account that receives sale proceeds must be reported on FBAR and potentially Form 8938 if threshold is exceeded.
Step-by-step: US NRI property sale in India
Step 1 — India: buyer deducts TDS at 12.5% of sale consideration, deposits via Form 26QB before registration.
Step 2 — India: proceeds (net of TDS) credited to NRO account. File India ITR-2, report LTCG in Schedule CG. Claim 54EC or 54F exemptions if applicable. Apply for TDS refund if actual tax is less than TDS.
Step 3 — US: calculate the USD gain: Sale price in USD (converted at sale date rate) minus purchase price in USD (converted at purchase date rate) minus selling expenses in USD.
Step 4 — US: Report on Form 1040 Schedule D. Report India sale as a long-term capital gain (if held 24+ months — US uses 12 months for LTCG qualification). Include the full USD sale price and USD cost basis.
Step 5 — US: File Form 1116 (separate passive income basket for capital gains if not categorized as general limitation income — capital gains go in the 'Passive Category' basket). Enter India LTCG tax paid in CAD equivalent as the creditable foreign tax.
Step 6 — FBAR: Report NRO account if peak balance > $10,000 in the year of sale.
Currency gain/loss on the property (Forex)
The USD value of the property at purchase vs. the USD value at sale creates a currency gain or loss independent of the INR capital gain.
Example: Property bought for ₹50 lakh when USD/INR was 60 (USD cost = $83,333). Sold for ₹1 crore when USD/INR was 84 (USD proceeds = $119,048). USD gain = $35,715 even if the INR gain is ₹50 lakh (at the 12.5% India rate).
The FTC basket: India LTCG tax in USD is available as a credit up to the US tax on the USD gain in the relevant FTC basket. Effective planning ensures the credit offsets the US tax fully.
Frequently asked questions
If I qualify for the 54EC exemption in India, does the US still tax the gain?
Yes. 54EC or 54F exemptions reduce India tax but do not reduce the US tax obligation. The US taxes the full USD gain (minus valid exclusions). If India tax is zero (due to 54EC), there is no FTC to claim — the US taxes the gain at the applicable long-term rate.
Can I use a Section 121 US home-sale exclusion ($250k/$500k) on my India home?
Only if the India property was your primary residence for 2 of the last 5 years. The US Section 121 exclusion applies to worldwide homes. However, the Section 121 exclusion may be limited or unavailable if the property was also claimed for India tax exemptions (54F). Get advice from a dual-tax CPA.
Do I need a separate Form 1116 for the India property sale gain?
Yes — capital gains income in the passive category generally goes on a separate Form 1116 from passive interest income. Check with a CPA to ensure the correct income basket is used for the India property gain.