Navigating the Tax Maze

A Visual Guide for U.S. Residents Selling Property in India

The Core Challenge: Two Countries, Two Calculations

When you sell a property in India as a U.S. resident, you face tax obligations in both countries. The key difference is how the profit (capital gain) is calculated. India adjusts for inflation ("indexation"), while the U.S. does not, leading to a much larger taxable amount on paper in the U.S., often called a "phantom gain."

Taxable Gain in India

₹15,027,473

(With Inflation Adjustment)

Taxable Gain in the USA

$271,793

(Without Inflation Adjustment)

Based on a hypothetical sale of a property bought in 1990 for ₹500,000 and sold in 2024 for ₹25,000,000.

🇮🇳 Your Tax Journey in India

1. Tax Deducted at Source (TDS)

The buyer withholds ~20%+ of the *total sale price* (not the profit) and pays it to the government on your behalf. This usually results in an overpayment of tax.

2. Calculate Actual Gain

Calculate your Long-Term Capital Gain using the "Indexed Cost of Acquisition." This inflation-adjusted cost significantly reduces your taxable profit.

3. Consider Reinvestment

You can potentially reduce or eliminate your Indian tax by reinvesting the capital gain into a new property (Sec 54) or specified bonds (Sec 54EC).

4. File ITR-2 & Claim Refund

File your Indian tax return (Form ITR-2) to report the final gain, reconcile the tax, and claim a refund for the excess TDS that was initially deducted.

🇺🇸 Your Tax Journey in the USA

1. Convert to U.S. Dollars

Convert the original purchase price and the final sale price from INR to USD using the historical exchange rates for the exact dates of the transactions.

2. Calculate U.S. Capital Gain

Calculate the gain based on the simple difference between the USD sale price and the USD purchase price. No indexation is allowed.

3. Report on U.S. Tax Return

Report the sale on Form 8949 and summarize the gain on Schedule D of your Form 1040. This determines your tentative U.S. tax liability on the gain.

4. Claim Foreign Tax Credit (FTC)

File Form 1116 to claim a dollar-for-dollar credit for the final income taxes you paid to India. This is the key step to avoid double taxation.

The Power of the Foreign Tax Credit (FTC)

The FTC is your primary shield against double taxation. It directly reduces your U.S. tax bill by the amount of tax you've already paid in India. As the chart shows, the credit can neutralize most, if not all, of your U.S. tax liability on the property sale.

Master Compliance Checklist

India Filings 🇮🇳

✔
Form 13: Apply *before* the sale for a Lower Deduction Certificate (LDC) to reduce TDS.
✔
Form 16A / 26AS: Your proof of TDS paid by the buyer. Essential for your records.
✔
ITR-2: File to report the final gain, calculate tax with indexation, and claim your TDS refund.
✔
Form 15CA/CB: Required by your bank to repatriate (transfer) the sale proceeds to the U.S.

USA Filings 🇺🇸

✔
Form 8949 / Schedule D: Report the details of the property sale and calculate the net capital gain in USD.
✔
Form 1116: The most critical form. Use it to calculate and claim the Foreign Tax Credit.
✔
FinCEN Form 114 (FBAR): Report foreign bank accounts if the total value exceeds $10,000.
✔
Form 8938 (FATCA): Report specified foreign financial assets if you meet the higher reporting thresholds.