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ksh2025
New Member

Sale of Property in India

Hello,

I am a resident of Washington State.  In October 2024, I have sold a property in India which I owned 50% and my mother who is a resident Indian owned 50%.  The property was bought 16 years back and since the capital gains calculated in India considers an inflation index due to which the gains calculated are on lower side as compared to the US The buyer had deducted the TDS before paying the final amount. 

 

I had bought the flat 16 years back with my mother being the co-owner. The capital gains calculated in India considers an inflation index due to which the gains calculated will be lower than the TDS deducted, which means I am expecting refund on TDS deducted during sale of property in my 2025-26 Tax return in India as the capital gain on sale of property will be almost zero.

 

In that case, do I still need to pay capital gains tax in US and do we consider indexing rule while calculating capital gains tax in US for sale of property in India?

 

 

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8 Replies
pk
Level 15
Level 15

Sale of Property in India

@ksh2025 , Namaste ji.

 

(a)  when did you enter the USA and which visa ?

(b) when did you complete the sale of the condo in India ?

(c)  do you have any earnings in the USA and if  so ,  ball park figure, please?

(d)  What was your Acquistion cost for the  prop., cost of any improvements , how did you use it ,, how much did you sell it for  --- I need ball park figures.

Generally , if you are /were a US person ( Citizen/GreenCard/ Resident for tax purposes ) at the time of the sale , then  you would be subject to world income tax, including  any gains from sale of assets in India.   US does not use  indexing of basis ( like India does ), and the gain may be taxed  partly at marginal rate or at ca[pital rate ( depending on exact facts and circumstances ).

 

I will circle back once I hear from you  -- you can also PM me  if you are un-comfortable sharing details -- just NO PII  ( Personally Identifiable Information ) please.

Sale of Property in India

Indexing and TDS has nothing to do with US taxes, so they don't affect your US tax return.

 

After converting the purchase price and sales price to US dollars, if there is a gain you will need to report that gain on your US tax return.

 

If you have a mortgage on the property or if the property has been used as a rental property, I highly suggest that you go to a tax professional that is experienced with US tax from international sources.

 

Don't forget FBAR and FATCA forms, if they apply.  If you have not been filing those in the past (if they apply), I highly recommend going to a tax professional that is experienced with correcting those prior missed forms.

Sale of Property in India

I have a followup question, does this mean tds need to deducted from actual sale price to report net sale price in us tax return? 

pk
Level 15
Level 15

Sale of Property in India

@jkbasak , for US tax purposes ,

 

(a) you treat a foreign asset  alienation/sale  just like a domestic asset sale.  The gain/loss computation  uses                                 1.    Sales Proceeds ( =Sales Price  LESS sales expenses such as preparation  for sales expenses, transfer tax, title work cost,   commission etc. )

                        2.  Adjusted Basis  ( =  Acquisition cost + cost of any improvements over the  holding period  LESS  accumulated allowable depreciation )

                        3. Period of holding,.

(b)    If there is gain per US rules, then the portion of the gain caused by accumulated depreciation is  treated as ordinary gain ( taxed  at your marginal rate  -- recovery ) and the rest is eligible for capital gain tax treatment.

(c)  For Foreign tax credit  ( reducing the impact of the same income being taxed by both taxing authorities and as per Tax treaty between  US and the "other country"), the foreign source  income is only that which is being doubly taxed ( when multiple taxing authorities are in volved, then an allocation process is required ).

(d)  While US recognizes dollar for dollar the taxes paid to  foreign taxing authority(ies), the allowable  amount for the year is  the lesser of  the US tax or actual paid to foreign govt.

 

Thus , when you enter the  Foreign Gross income there is no deduction for TDS -- the TDS shows up as Foreign taxes paid.

 

Does this make sense ?

Is there more I can do for  you ?

Sale of Property in India

Thank you PK for your time to respond. Just to ensure I understand your response since there is no provision to enter TDS while entering foreign income in the US Tax File. So there are 2 options

1. Net Sale proceed = Sale Amount - (TDS + Other Sale Expense like Sale Commission)

2. Enter TDS as a Foreign tax credit in Form 1116.

Since TDS on property sale in India is deducted at a higher bracket (30%), does this make sense to select one over other? 

pk
Level 15
Level 15

Sale of Property in India

@jkbasak , Namaste Basakji

Since there is a tax treaty   between India and USA,  which defines  taxes that under consideration of the treaty,  the argument  that   (a) to  reduce double taxation bite  one should use Net income from sale  ( i.e. after deducting the TDS ) will not  survive a challenge a by IRS.  IMHO, for cases where there is NO Tax Treaty, one may have a chance because the issue is not  discussed;  (b)  the  "savings  clause"  in most treaties allows each  contracting party to administer  tax rules as if the treaty did not exist for its own taxpayers.

 

Thus  I think you  will lose  if you claim that  your sales proceeds per US tax laws  should be net of TDS.

 

Also note that TDS is  only a temporary withholding -- it is not settled amount ( till your ITS has been accepted and agreed to ).

Don't understand  30% figure --- thought it is  20% with indexing basis  and 12.5% with NO indexing.  Please  can you  confirm with you Tax person in India  ( this was brought up another poster  with similar  situation and so I had  to update my knowledge )P.

 

Namaste ji

Is there more i can do for you   ( either add here or  PM me )

 

pk

Sale of Property in India

Hello PK -

Thank you for the time to respond. You are correct, TDS on India property sales by NRI is 20% .  Let me try one more time to clear my understanding

1. As a US Resident, for the sale of property in India,  for US Tax purposes the capital gain should be Sale Price - Purchase price - Sale Expense(like Travel and sales commission). Since there is no indexing, it will simply INR converted to USD based on the exchange rate applicable on the day of the transaction.

2. As US Resident, the amount Seller pay TDS in India, needs to claim the refund as applicable in India. He/She needs to pay the Tax on Capital gain in the  USA only. Hence, no need to declare the TDS as a foreign tax credit since TDS is temporary in nature. 

Another question, can you tell me how to reach you for any further questions in this regard? Are you part of Turbo tax advisory team whom i can reach through live help option?

pk
Level 15
Level 15

Sale of Property in India

@jkbasak ,  starting with your last question  --

(a) I am a volunteer in the community, have no other relationship / interest with TurboTax.  No you cannot reach me through TurboTax support -- Post in the community or PM.

(b)  your point 1, is generally correct except for travel expenses ( it is generally hard to justify this and win the argument ).    Generally what you are  doing for US purposes , is to treat the sale as if  was a domestic property.  So you  adjust your basis in the property  as shown in my earlier answer .  Tell TurboTax that you have sold a home/ residential property / second home  etc. ( as the  case may be  )   -- if the property was  for personal use and not income then this will be under  personal income, go down the list of incomes  and select appropriate one,  If the ;property was an income property i.e. rented out and possibly  depreciable then this is generally under  Business Income.  What you are doing here is  just recognizing a sale  and ONLY under US tax laws.

(c)  your point 2  --- if and only if you wish to claim Foreign Tax Credit -- form 1116.  This is under  Deductions & Credits-- select "Foreign Tax Credit" and TurboTax will walk you through filling out  the form 1116.  Here your Foreign Source income is your gross  foreign income ( before  TDS ) subject to US taxers -- it is  mostly the lesser of  the foreign capital gain and the US capital gain.  This is where you also enter  the final Taxes  paid to the foreign taxing authority.   Because TDS is only a withholding, one should  generally wait  till the Foreign tax amount is finalized or one may have to amend the US return.

Note here that  while US has a treaty ( Double Taxation elimination/mitigation ) with India , most states do NOT recognize foreign tax treaties and therefore  your  capital  gain ( per US tax rules ) may flow to the State return and be  taxed  -- no foreign tax credit.

 

Have I answered and cleared your doubts  or did  I confuse the situation more ?   As I said earlier , you can always PM me for more specific interaction ( just NO PII --- personally Identifiable Information ).

 

Namaste ji

 

pk

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