If you are a US person and subject to US tax laws (i.e. a citizen, permanent resident with a green card, or resident alien) then your US tax is determined using only US tax laws, and this includes capital gains tax. You must determine your US capital gains under US law, even though you will determine your capital gains for India taxation using Indian laws. You can then claim a credit or deduction on your US tax return for foreign taxes paid on the same income.
Your cost basis will be your actual purchase price converted to US dollars using the exchange rate for that day (you can get historical rates online). You can adjust your basis for the cost of improvements (also at the appropriate exchange rate for when the improvements were paid for). Also be aware that if the home was used as a rental or in business, you must make an adjustment for depreciation you claimed or could have claimed under US tax law.
