Inheritance and Gifts

When a parent in India dies or decides to pass something on, three questions come up in the same conversation: what does India tax, what does the US tax, and what forms does each country want? The answers are mostly "nothing is taxed on receipt, but several things are reported, and the way the asset reaches you decides the tax on its later sale." This chapter covers inheritance and gifts coming to a US taxpayer from India: the US basis and reporting, the Indian rules for receiving and holding, the exemption for gifts from relatives, and the difference between receiving property by will and by gift deed. Money you send the other way, to support parents, is chapter 6. The sale of an inherited flat is worked through in the answer selling inherited property in India, US tax.

Receiving: not income, but reported

A gift or inheritance is generally not taxable income to the person who receives it in the US. Reporting is separate. A US person who received more than $100,000 in a year from a nonresident alien individual or a foreign estate, with gifts from related givers added together, reports it on Form 3520, due with the income tax return (IRS, Instructions for Form 3520). The penalty for not reporting is 5% of the gift for each month, up to 25%. An inheritance from a parent's estate counts. The visa shelf chapter on money and gifts across borders covers the form; for an Indian household, the points to add are these:

• Count everything that year from the same family: money from both parents, the value of a house they transfer, and a sibling's gift of the same estate.
• The amount is in dollars. Convert each rupee amount at the rate when you received it, and keep the source of the rate.
• A transfer you are expected to repay is a loan, not a gift.
• If the property sits in a company or trust rather than in a person's name, the answer changes. Ask a professional.

Inheritance and the US basis

When you later sell something you inherited, the gain is measured from your basis. IRS Publication 551 says the basis of inherited property is generally its fair market value at the date of the decedent's death. For a flat bought decades ago, that replaces the family's old cost with its value on the day the owner died, converted to dollars at the rate on that date. IRS Publication 550 adds that the gain or loss on a later sale is long-term, however long you held it.

That gives the family a reason to get the property valued as of the date of death by a registered valuer, early, and to keep the report. It also gives a two-country mismatch, which is the main point of this chapter.

The two countries use different costs

For Indian tax, an inherited asset takes the cost the previous owner paid, and your holding period includes theirs. The Income-tax Act, 2025, section 73 (formerly section 49(1)) sets the cost of an asset that becomes yours "under a gift or will" or "by succession, inheritance or devolution" as the previous owner's cost plus improvements. Section 2(101) counts the period the previous owner held it. So:

• India taxes the gain from the family's old cost to the sale price, in rupees. If the flat was bought long ago the cost may be low and the Indian gain large.
• The US taxes the gain from the value at death to the sale price, in dollars. If you sell soon after the death the US gain may be small, or a loss.

Indian tax can then be larger than the US tax on the same sale, and only part of it can be credited. The India property sale calculator has a switch for an inherited property and shows both gains.

Gifts during life: a different US basis

When an asset is given while the giver is alive, the US recipient generally takes the giver's basis, not the value on the day of the gift (IRS Publication 551, "Property Received as a Gift"). A parent who transfers a flat by gift deed in their lifetime therefore passes on their old cost for US purposes too, while a flat that passes at death gets the new, higher basis. India treats the two the same way, with the previous owner's cost. The US side is where the route makes a difference, in either direction depending on the numbers.

This is a planning point, not a recommendation. The parent's own wishes, the stamp duty on a gift deed (set by each Indian state), succession law, and the family's other needs usually weigh more than the basis. What helps is to have the question asked early, with a lawyer and a Chartered Accountant in India and a preparer here, before a deed is signed.

The Indian side of receiving

Under section 92 of the 2025 Act (formerly section 56(2)(x)), money or property received without consideration is taxed as income from other sources once the year's total passes ₹50,000. Section 92(3) then lists exceptions, and three of them cover family transfers:

• from any relative (section 92(3)(a)); a relative includes a spouse, siblings and any lineal ascendant or descendant, so parents and children are included (section 92(5)(g));
• under a will or by way of inheritance (section 92(3)(c));
• in contemplation of the death of the donor (section 92(3)(d)).

Gifts from friends or unrelated people above the threshold are taxed. A gift of immovable property is measured by its stamp duty value. Whatever the route, the later sale is taxed on the gain over the previous owner's cost, as described above. This is the text as published in the Gazette on 21 August 2025.

Foreign exchange rules on your side

The RBI Master Direction on immovable property (updated 1 September 2022) says an NRI or OCI can receive by gift any immovable property other than agricultural land, plantation property or a farm house, from a resident in India or from an NRI or OCI who is a relative as defined in the Companies Act, 2013 (the RBI's FAQ describes every such gift as coming from a relative). An NRI or OCI can inherit any immovable property from a resident in India, or from a person resident outside India who acquired it in line with the foreign exchange law at that time. Agricultural land is treated separately in the same direction; ask the bank or a lawyer before assuming.

A resident relative can also give rupees to an NRI relative within the limits of the Liberalised Remittance Scheme, and the RBI FAQ on non-resident accounts says that gift is credited to the recipient's NRO account. From there, taking the money to the US uses the yearly limit of $1,000,000 and the paperwork covered in the answer how to bring money from India to the US.

What you hold afterwards, in the US system

• An Indian bank account inherited or received into your name is a foreign account for the FBAR once your total passes $10,000. A joint holder counts. A person named only as the bank's nominee does not own or control the account, which is what the FBAR test looks at, but ask your preparer.
• Inherited shares and mutual funds are held in India; funds raise the PFIC rules. Inherited jewellery and gold are not reported on the FBAR, but the sale of anything is a taxable event in dollars.
• For US estate tax, your own estate includes your worldwide assets if you are a US citizen or domiciled here, up to a basic exclusion of $15,000,000 per person for 2026. India's property is part of the count.