Indian Property: Buying, Renting and Selling

A flat or plot in India is the largest Indian asset many households in the US own, and it touches both tax systems at three moments: when you buy it, when you rent it out, and when you sell it. At each moment the two countries measure different things. India measures rupees, on its own tax year. The US measures dollars, converted at the exchange rate on each date. This chapter covers the rules at those three moments and the paperwork for bringing the money home. For the detailed tax on an inherited property sale, there is a separate answer: selling inherited property in India, US tax. The India property sale calculator runs your own numbers in both currencies.

Buying from the US

The Reserve Bank of India's Master Direction on acquisition and transfer of immovable property (updated 1 September 2022) is the source for what an NRI or OCI may do.

• An NRI or OCI can buy any immovable property in India other than agricultural land, plantation property or a farm house.
• Payment must come through banking channels: an inward remittance from abroad, or a debit to an NRE, FCNR(B) or NRO account.
• Where you pay matters later. The direction allows repatriation of sale proceeds, in the cases it describes, if the purchase was paid for in foreign exchange through banking channels or from NRE or FCNR(B) funds. For residential property the repatriation is limited to two properties.

On the US side, nothing is taxed when you buy. The purchase price converted to dollars at the exchange rate on the purchase date is your US basis, and later improvements are added at the rate on their dates. A flat you own directly is not on the FBAR, which covers financial accounts, and it is not a "specified foreign financial asset" on Form 8938, whose list in the IRS instructions is accounts, foreign stock and securities, interests in foreign entities and contracts with foreign counterparties. A company, partnership or fund that owns the flat would be different, as would the bank account that receives the rent.

Renting it out

India. Rent is income from house property. The annual value, less municipal taxes you actually paid, is reduced by a standard deduction of 30% of the annual value and by interest on a loan used to buy or build the property (Income-tax Act, 2025, sections 21 and 22; formerly sections 23 and 24). Tenants paying an NRI are expected to deduct tax at source at "rates in force" (section 393(2)), and the tax is settled on the Indian return (chapter 2). If you have not filed in India before, the first return for a property sets up everything that follows.

United States. The same rent goes on Schedule E in dollars, with expenses and depreciation. Foreign residential rental property is depreciated over 30 years under the alternative depreciation system (IRS Publication 946), and depreciation reduces your basis whether or not you claimed it. Indian tax paid on the rent can be credited on Form 1116. Chapter 1 covers the credit's limits.

A monthly rent in rupees is also a stream of currency conversions. Keep the rate you used for each month or use one consistent yearly average, and keep it for the sale year too, when the basis and the price are converted.

Selling

India. A long-term gain on land or a building is taxed at 12.5% under section 197 of the 2025 Act (formerly section 112), with surcharge and cess where they apply. Land and buildings are long-term if held more than 24 months (section 2(101)). Short-term gains are taxed at slab rates. Section 197(3) gives residents, and only residents, a way to ignore the excess tax for land or buildings acquired before 23 July 2024 by comparing with a higher rate on an indexed cost. An NRI does not get that comparison, so the 12.5% rate on the unindexed gain applies.

Tax deducted by the buyer. When the seller is a non-resident, the buyer deducts tax at source (section 393(2); formerly section 195). In practice the buyer often calculates it on the whole sale price, not the gain, which can hold back far more than the tax. A lower deduction certificate from the tax department (section 395 of the 2025 Act, formerly sections 195(2) and 197), obtained before the sale money is paid, can reduce it; section 395(2) also lets the buyer ask the Assessing Officer to fix the part of the sum that is chargeable. Any excess is recovered on the Indian return. Treat the first claim as a rule of thumb: the actual practice depends on the buyer and the bank, and the answer page and a Chartered Accountant can confirm what applies to your sale.

United States. The sale is a capital gain in dollars. The cost is converted at the rate on the day you bought, the price at the rate on the day you sold. If the rupee fell during the holding period, the dollar gain is smaller than the rupee gain, and can be a loss. The IRS rule for converting is to use the rate prevailing when you receive, pay or accrue the item. Indian tax on the gain is creditable on Form 1116, and the 3.8% net investment income tax is not reduced by the credit. Chapter 1 gives the thresholds.

Two dates show the size of the effect. The Federal Reserve rate for the rupee was ₹59.15 to the dollar on 2 June 2014 and ₹95.81 on 25 September 2026. A property bought on the first date for a given dollar price needs its rupee price to rise by roughly three fifths just to break even in dollars on the second. A big gain in rupees can therefore be a small gain, or none, in dollars, while India still taxes the rupee gain. The calculator shows both numbers with your dates.

Exemptions for reinvesting. India allows a long-term gain to be exempt if reinvested: in a residential house (section 82 of the 2025 Act, matching the old section 54), in specified bonds (section 85, matching 54EC) or, for a gain on an asset that is not a house, in a house (section 86, matching 54F). Each has its own deadlines and caps, set out in the section. The US does not recognize that exemption, so an Indian exemption means no Indian tax to credit and the full gain remains taxable in the US. Ask a Chartered Accountant before relying on one.

Bringing the money home

Sale proceeds land in your NRO account, where they count on the FBAR and Form 8938 at their highest balance. To send them to the US:

• The RBI allows repatriation of the proceeds of a property purchased with foreign exchange or from NRE or FCNR(B) funds, within the conditions above.
• Other balances in an NRO account, including the proceeds of an inherited property, can be sent abroad within $1,000,000 per Indian financial year, together with your other eligible assets, under the Remittance of Assets regulations.
• The bank will ask for the sale deed, proof of the Indian tax paid or deducted, and the undertaking forms. The tax forms changed from 1 April 2026; the answer page how to bring money from India to the US lists them.

A large sale near the end of March can be split across two financial years for the yearly limit.