Why is this complex?
Three layers:
- India side: LTCG/STCG, TDS at 12.5%-20% deducted by buyer
- US side: Capital gain on Form 8949, depreciation recapture if rented
- FX side: Currency translation in USD using historical and current rates
India tax mechanics
Property held by NRI:
- ≤24 months: STCG at slab rates
-
24 months: LTCG at 12.5% without indexation (post-July 2024). Pre-July 2024: 20% with indexation OR 12.5% without (whichever lower for pre-July assets).
TDS by buyer: 12.5%-20% of sale value (not gain). NRI seller can apply for Lower TDS Certificate (Form 13) before sale to reduce withholding.
Refund: If TDS exceeds actual tax, refund via Indian ITR.
US tax mechanics
For US tax residents, gain on Schedule D / Form 8949:
- Sale price in USD (year-average or sale-date rate)
- Cost basis in USD (basis-date rate at original purchase)
- FX gain/loss part of capital gain
If rented in US return:
- Depreciation recapture (Section 1250) at up to 25% rate
- Applies even if you didn't claim depreciation — IRS assumes you did
Held >1 year: LTCG 15-20%. ≤1 year: ordinary rate.
FTC on Indian property capital gains
Indian LTCG tax FTC-creditable on Form 1116, passive basket. US LTCG 15-20% vs Indian 12.5%. Net US tax = US rate - Indian rate.
For depreciation recapture (25% US), Indian tax doesn't directly offset.
Capital gain exemptions (Indian side)
Indian resident: Section 54 (residential property), Section 54F (long-term asset), Section 54EC (bonds) can exempt gain.
NRIs: Section 54/54F apply if investing in residential house in India within timelines.
For US tax: Indian exemptions don't reduce US tax — only Section 121 ($250K single / $500K MFJ on primary residence) applies. Indian rental property doesn't qualify.
Repatriation process
- Buyer deposits TDS via Form 26QB
- NRI seller receives Form 16A
- NRI files Form 15CA (self-declaration) and Form 15CB (CA certificate)
- NRO account credit, USD wire to US bank
- Cap: USD 1 million per FY from NRO
Worked example
Bought Bangalore flat ₹50 lakh in 2015. Sold ₹2 crore in 2025. Held 10 years.
Indian tax:
- LTCG: ₹1.5 crore
- LTCG @ 12.5% = ₹18.75 lakh
- TDS by buyer @ 12.5% = ₹25 lakh (on full sale)
- Refund via ITR: ₹6.25 lakh
US tax (15% bracket):
- Sale: $240,000 (year-avg ₹83)
- Basis: $76,923 (₹50L at 2015 rate ~₹65)
- Gain: $163,077
- US LTCG @ 15% = $24,461
- FTC: ~$22,500
- Net US tax: ~$2,000
Common mistakes
- Not applying for Lower TDS Certificate (default 20% deducted on full sale)
- Forgetting Form 15CA/15CB for repatriation
- Wrong FX rate (use historical for basis, sale-date for proceeds)
- Missing depreciation recapture if previously rented
- Not claiming FTC
Strategy tips
- Apply for Lower TDS Certificate 1-2 months before sale
- Get US-friendly CA in India for Form 15CB
- Use realistic FX rates with documentation
- Plan repatriation across FY end if exceeding $1M cap
- Coordinate with US capital loss positions to offset
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.