Owning property in India is common among individuals of Indian origin who later acquire U.S. citizenship. However, when it comes time to sell that property, the process isn’t as simple as signing a sale deed. From navigating Indian tax laws to fulfilling U.S. reporting requirements, selling property in India as a U.S. citizen involves multiple legal and financial considerations.

This blog walks you through the critical steps, tax liabilities, and cross-border compliance you should be aware of.

1. Understanding Your Residential Status

As a U.S. citizen, India treats you as a Non-Resident Indian (NRI) under the Income Tax Act. This means that although you're not a resident for tax purposes in India, any income—including capital gains—from an Indian asset is taxable in India.

Simultaneously, the U.S. requires you to report worldwide income, meaning the property sale must also be declared in your U.S. tax returns.

2. Capital Gains Tax in India

When you selling property in India as a U.S. citizen, the profit is subject to capital gains tax:

• Long-Term Capital Gains (LTCG):
  Applies if the property was held for more than 2 years. Taxed at 20% after applying indexation benefits.

• Short-Term Capital Gains (STCG):
  Applies if the property is held less than 2 years. Taxed at your applicable slab rate, often around 30% for NRIs.

The type of gain determines the rate and method of taxation in India.

3. TDS Deduction at Source

When an NRI sells property, the buyer is legally required to deduct TDS (Tax Deducted at Source):

• 20% on LTCG

• 30% on STCG

This deduction is on the total sale value, not just the gain. To reduce your tax burden, you may apply for a Lower or Nil TDS Certificate from the Income Tax Department before the sale.

4. Repatriation of Sale Proceeds to the U.S.

Once the taxes are paid, U.S. citizens can repatriate funds from India up to USD 1 million per financial year through an NRO account.

You’ll need:

• Form 15CA and 15CB (certified by a Chartered Accountant)

• Proof of property ownership and sale

• Tax payment receipts

Compliance with FEMA (Foreign Exchange Management Act) rules is mandatory for fund transfers out of India.

5. U.S. Tax Implications

As a U.S. citizen, you must report the gain from the Indian property sale in your IRS Form 1040. Based on your holding period and income level, the gain may be taxed in the U.S. as short-term or long-term capital gains.

You can usually claim a foreign tax credit (Form 1116) for the taxes paid in India to avoid double taxation.

6. FATCA, FBAR, and Reporting Requirements

Don’t overlook the U.S. reporting rules:

• FBAR (FinCEN 114):
  Required if the aggregate value of your foreign accounts exceeds $10,000 at any time in the year.

• FATCA (Form 8938):
  Required if your foreign financial assets exceed IRS thresholds.

Failure to file these forms can result in significant penalties—even if no U.S. tax is due.

7. Deductions and Exemptions in India

As a seller, you can reduce your Indian tax liability using available exemptions:

• Section 54: Reinvest in another residential property in India

• Section 54EC: Invest in capital gain bonds (NHAI/REC) within 6 months

• Capital Gains Account Scheme (CGAS): If planning to reinvest but haven't yet

These exemptions are available to NRIs and must be declared properly.

8. Property Inherited or Gifted? Know Your Cost Basis

If you inherited or were gifted the property, your cost basis is the original purchase price paid by the previous owner, adjusted for inflation.

If inherited after 2001, you may use the Fair Market Value (FMV) as on April 1, 2001, for computing capital gains.

9. Documentation Checklist

Here’s what you need for a smooth sale:

• Sale and purchase deeds

• PAN card (India)

• NRO bank account

• TDS certificate (Form 16A)

• Tax computation sheet

• Form 15CA and 15CB

• Proof of payment and ownership

Consulting a Chartered Accountant (CA) in India is strongly advised.

Conclusion

Selling property in India as a U.S. citizen requires careful coordination between Indian and U.S. tax systems. From managing capital gains taxes and TDS in India to declaring the income on your U.S. tax returns, every step involves detailed documentation and compliance. Failing to follow proper procedures could result in penalties or delayed fund transfers.

To ensure a compliant and tax-efficient sale, it’s wise to seek expert help—both in India and the U.S.

If you're looking for personalized assistance with NRI property sales and international tax filing, get in touch with Dinesh Aarjav & Associates, your trusted partner in cross-border tax and compliance matters.