Selling Inherited Property in India from the USA: NRI Tax and FEMA Rules

The Tax Bite on NRI Property Sales Is Steep — and Mandatory

When a US-based NRI inherits property in India and sells it, the buyer is legally required to deduct Tax Deducted at Source at non-resident rates before paying you. These rates are significantly higher than what resident Indians pay, and the deduction happens at the point of sale — not at tax filing time.

For Long-Term Capital Gains (property held more than 2 years from the date the deceased originally acquired it — not from the date you inherited it), TDS is 20% plus applicable surcharges and cess. For Short-Term Capital Gains, the rate can go up to 30% plus surcharges.

On a property worth INR 1 crore, that means INR 20–30 lakh withheld by the buyer and deposited directly with the Indian tax authorities before you see any of the sale proceeds.

Reducing the TDS: Form 13

You are not stuck paying the full non-resident TDS rate. If your actual capital gains tax liability is lower than the 20–30% withheld — and it often is, because indexation benefits, acquisition cost basis from the original owner, and improvement costs reduce the taxable gain — you can apply for a lower or NIL TDS certificate.

File Form 13 with the jurisdictional Income Tax Officer under Section 197 of the Income Tax Act. This application must be filed before the sale closes. If approved, the tax officer issues a certificate specifying a reduced TDS rate, and the buyer deducts only that amount instead of the full 20%.

Getting Form 13 approved requires a chartered accountant in India to prepare the computation of capital gains, demonstrate the correct cost basis (using the original owner's acquisition cost, indexed to the year of sale), and calculate the actual tax liability. This is not a DIY exercise.

The FEMA Remittance Pipeline

After the sale closes and TDS is deducted, the net proceeds land in your NRO (Non-Resident Ordinary) account in India. Getting that money out of India and into your US bank account requires compliance with the Foreign Exchange Management Act.

Step 1: Form 15CA — Filed online by the remitter (you or your authorized representative) on the Income Tax Department's e-filing portal. This is a declaration that covers tax compliance on the outward remittance.

Step 2: Form 15CB — A certificate signed by a practicing chartered accountant in India confirming that all Indian tax liabilities on the property sale have been fully discharged. The CA verifies TDS payment, capital gains computation, and any advance tax paid.

Step 3: Bank submission — The NRO account bank processes the remittance based on Form 15CA, Form 15CB, the TDS certificates, and the sale deed.

Remittance limit: FEMA caps the repatriation of sale proceeds from an NRO account at $1 million USD per financial year (April–March). If the sale amount exceeds this, you spread the remittance across financial years.

The Cost Basis Trap

For capital gains calculation, the cost of acquisition is what the original owner (the deceased) paid for the property, not its market value at the time you inherited it. However, you can apply the Cost Inflation Index to this original cost to account for inflation, which significantly reduces the taxable gain on properties held for decades.

For older properties, ask an Indian chartered accountant whether a statutory fair-market-value option is available as an alternative cost basis for the relevant acquisition date.

The tax obligation discussed here arises when you sell the property; confirm the treatment of the inherited asset and any other tax consequences with an Indian chartered accountant.

The Operational Sequence

1. Establish title: Get the property mutated into your name in the local municipal records using the death certificate, succession certificate or probate order, and identity proof
2. Obtain an Estate PAN if you need to manage the deceased's financial affairs before the property transfer
3. Engage a chartered accountant to compute capital gains and file Form 13 for a lower TDS certificate
4. Complete the sale with the buyer deducting TDS at the approved rate
5. File Form 15CA/15CB and initiate the remittance through your NRO account bank
6. File Indian income tax return for the financial year in which the sale occurred, reporting the capital gain and claiming credit for TDS paid

If the property is in the deceased's name and multiple legal heirs exist, all heirs must either agree to the sale and sign the deed, or a partition must be executed first. A single dissenting heir can block the entire transaction.

Double Taxation Relief

As a US tax resident, you should ask your US CPA how to report the transaction on your US federal tax return and whether a Foreign Tax Credit is available under the US-India Double Taxation Avoidance Agreement for Indian tax paid on the same gain. Your US CPA and your Indian CA should coordinate the reporting.

For the complete estate settlement workflow including bank transmissions, succession certificates, and FEMA procedures, see the Indian Dies in the US — Family Guide.