Do I Pay US Tax on Selling Property in India? Forms, Credit & Reporting

General information, not tax or legal advice. Rules as of October 2026.

This article covers the US side only. For the full process (Power of Attorney, TDS, Form 128, NRO, repatriation), see our hub: How to sell property in India from the USA.

Who has to pay US tax when selling property in India?

If you are a US citizen, green-card holder or US tax resident, the US taxes your worldwide income. You report the sale even if India already taxed it, the money is still in your NRO account, or you inherited the property.

India taxes the gain first. Under the India–US DTAA, India keeps the right to tax gains on immovable property located in India, and the US gives you credit for that tax. Our DTAA guide for NRIs explains the treaty logic.

Which US forms do I file after selling property in India?

Here is the full US reporting checklist for one sale. Your preparer files most of it with Form 1040; the FBAR is filed separately with FinCEN.

Keep the Indian paperwork your preparer will ask for: the registered sale deed, your purchase deed and payment records, receipts for improvements, the TDS certificate (Form 131, earlier Form 16A), your Indian return and final tax computation, and the exchange rates you used. Our main guide lists the documents US-based NRIs need on the India side.

How do I calculate the capital gain in USD?

The US gain is not your Indian gain converted at today's rate. It is:

• Sale price converted at the exchange rate on the sale date, minus
• Cost converted at the exchange rate on the purchase date.

Because the rupee has weakened over time, your old rupee cost converts into more dollars than it would today. That shrinks the USD gain, sometimes into a loss. Add improvement costs and selling costs (brokerage, legal fees) converted at the rate on the date you paid each one; they raise your basis or cut your proceeds.

›Example 1: the gain shrinks (illustrative)

Bought for ₹60,00,000 at an assumed ₹50/USD. Sold in 2026 for ₹1,76,00,000 at an assumed ₹88/USD.

Converting the rupee gain at today's rate would give $131,818. The correct USD gain is $80,000, about 39% lower.

›Example 2: an Indian gain, a US loss (illustrative)

Bought for ₹50,00,000 at an assumed ₹45/USD ($111,111). Sold for ₹90,00,000 at ₹88/USD ($102,273). India sees a ₹40,00,000 gain; the US sees an $8,838 loss. A loss on a home you used personally is not deductible in the US. If it was a rental or investment property, the loss is generally deductible; your preparer will confirm how.

What US tax rate applies?

Do I pay state tax on a property sale in India?

Usually, yes, if your state has an income tax. States tax residents on worldwide income, and most tax capital gains as ordinary income. Texas, Florida, Washington, Nevada, South Dakota, Wyoming, Alaska, Tennessee and New Hampshire have no tax on ordinary income; Washington does have its own tax on certain long-term capital gains, but sales of real estate are exempt from it.

The bigger catch: most states, including California and New York, don't give a credit for tax paid to a foreign country. Their resident credits cover tax paid to other US states, not to India. So even when Form 1116 wipes out federal tax, state tax on the USD gain is often payable in full. If you moved states during the year, the state where you were resident on the sale date usually taxes the gain. Check your own state's rules with your preparer.

How does the Form 1116 foreign tax credit work for an India property sale?

Form 1116 lets you subtract Indian tax paid from your US tax. Three rules matter.

1. 1The credit is capped at the US tax on that foreign income. You can't use Indian tax to reduce US tax on your salary.
2. 2Excess credit carries back 1 year or forward 10 years, but it can only be used against US tax on foreign income in the same category. Many one-time sellers never use it.
3. 3NIIT is usually not reduced by the credit. Plan to pay the 3.8% if your income is above the threshold.

›Continuing Example 1

Indian tax on the ₹1,16,00,000 gain: 12.5% = ₹14,50,000, plus 15% surcharge (₹2,17,500) and 4% cess (₹66,700) = ₹17,34,200, or about $19,707 at ₹88.

At 20%, US tax would be $16,000, still fully covered. The real Form 1116 limit is computed across your whole return, so treat this as the shape, not your number. Model your own treaty position with the DTAA calculator.

Indian exemptions affect your credit. If you reinvest under Section 82 (earlier Section 54) or buy bonds under Section 85 (earlier Section 54EC), your Indian tax falls, so your US credit falls with it. If US tax on the gain then exceeds the remaining Indian tax, you pay the difference to the IRS. Our capital gains saving playbook covers the Indian options.

Timing: India's April–March year vs the US calendar year

India's tax year runs April to March; the US year is January to December. A sale in February 2027 falls in India's tax year 2026-27 and the US 2027 tax year, but the Indian return that settles the final tax is filed after India's year closes.

Practical points:

• The buyer's TDS is usually higher than your actual Indian tax unless you got a Form 128 certificate. Only the final Indian tax is creditable, not the TDS.
• If you claim a credit based on TDS and India later refunds the excess, your creditable foreign tax drops and you may need to amend your US return.
• The cleanest approach is to file the Indian return promptly and give your US preparer the final Indian tax figure, not the TDS deducted.
• Exchange rate for the credit: if you claim credits when the tax is paid (the default for most individuals), Indian tax is generally converted at the rate on the date it was paid. If you elect to claim credits as they accrue (a one-time election on Form 1116 that applies to later years too), you can match the Indian tax to the year of sale; accrued taxes are generally converted at the average rate for the year. Ask your preparer which suits you before your first claim.
• Estimated tax: a large gain can mean NIIT and state tax you didn't have before. Pay quarterly estimated tax (Form 1040-ES and your state equivalent) or meet a safe harbour, such as paying 100% of last year's tax (110% if your AGI was over $150,000), to avoid underpayment penalties.

Inherited property: the step-up in basis

If you inherited the property, your US cost basis is stepped up to fair market value at the date of death, converted to USD at that day's exchange rate. If your parent died recently, the US gain may be tiny.

India works differently. The gain is generally computed from the original owner's cost, so Indian tax can be substantial. Much of the credit then goes unused. Get a formal date-of-death valuation; it anchors your US basis. Our inherited property LTCG calculator handles the Indian side.

Can I use the Section 121 home-sale exclusion?

Rarely. Section 121 excludes up to $250,000 of gain (single) or $500,000 (married filing jointly) on your principal residence, including a home outside the US, if you owned and lived in it as your main home for 2 of the 5 years before the sale. That can fit a recent arrival who sold their Indian home; it rarely fits a long-time NRI. Worth checking.

FBAR and Form 8938: reporting the money in your NRO account

Sale proceeds sitting in your NRO account, even for a few days, will almost always trigger the FBAR. The two reports overlap but are not the same.

Penalties for missing either can be steep, even when no tax is owed, so file both if you're near the thresholds. Our FBAR guide for NRIs explains how to count accounts and value them.

›Form 3520: when it applies, and when it doesn't

Form 3520 is for gifts or inheritances worth over $100,000 in a year from a non-US person, such as inheriting the flat from a parent in India or a parent gifting you sale money. There is no US tax on receiving it, but late filing carries penalties. Wiring your own sale proceeds from your NRO account to your US account is not a gift and doesn't need Form 3520. On the India side, repatriation is capped at USD 1 million per Indian financial year (April to March) from NRO balances; the repatriation calculator shows what you can move.

And one thing you don't need: FIRPTA applies only to foreigners selling US real estate. It has nothing to do with selling in India.

Get both sides of the sale right

Indian TDS, Form 128 and repatriation decide how much tax you pay in India and how fast your money reaches the US. See the full US seller's guide and our NRI property sale service, or book a free call (+91-97119-88391) and we'll walk through your numbers.

Related guides

Keep reading: short-term vs long-term capital gains for NRIs, Section 54EC bonds for NRIs, and do NRIs need to file ITR in India.