Good evening,
We own real estate (land) in India and sold one of them. There is Long Term Capital Gains (LTCG). I have a few questions:
- The tax system in India allows adjusting cost of acquisition/purchase price by indexation (adjusting by using cost inflation index [CII]) published by the government annually. You are also allowed to choose/opt for "without or no indexation." But, US doesn't allow indexation. My question is: for computing LTCG can I do indexation in India and consider the original cost of acquisition as allowed by the US tax system? Indexation helps to reduce LTCG in India.
- The tax system in India allows sellers to use original cost of acquisition/purchase price (which we have; for e.g., $100/sq ft) or fair market value (FMV; for e.g., $1,000 sq/ft) provided by a government approved valuator. FMV is widely used for computing LTCG in India because the government shifted CII base year from 1981 to 2001 for computing capital gains. My question is: can I use FMV in US as cost of acquisition? In most of the cases, using FMV along with indexation reduces LTCG in India.
The US and India have Double Tax Avoidance Agreement (DTAA). So, we get credit for foreign taxes paid in India on our federal tax return but not on the state tax return. Thanks for your help. Dabu.
