Mostly no. India taxes the gain because the property is there, the US taxes it because you live here, and the foreign tax credit under Article 25 of the treaty relieves most of the overlap. Three things survive it: the 3.8% net investment income tax, any Indian reinvestment exemption you claim, and the currency difference between the two gains.
7:05. The written version, the figures and the sources are all below.
| Indian long-term rate | 12.5% | Flat, on the rupee gain, for property held more than 24 months. Section 197(1) of the Income-tax Act 2025. |
|---|---|---|
| Effective, with surcharge and cess | 13% to 14.95% | 4% cess always; surcharge 10% or 15% by income. The capital-gains surcharge is capped at 15%. |
| Indexation for a non-resident | Not available | Section 197(3) relief is confined to a resident individual or HUF. An NRI is taxed on the full nominal rupee gain. |
| Withholding on the sale | The whole price | Not the gain, and there is no threshold. Section 393(2) of the Income-tax Act 2025, the successor to section 195. |
| US net investment income tax | 3.8% | Applies above $200,000 of MAGI single, $250,000 joint. No foreign tax credit can reduce it. |
| Repatriation from an NRO account | $1,000,000 | Per Indian financial year, under the FEMA Remittance of Assets Regulations 2016. |
India taxes the gain where the property sits. The US taxes it again because you live here. A credit fixes most of that — and there are three places it does not.
You sold a flat in Pune, or a plot your father left you in Hyderabad. The buyer withheld a number that made your eyes water, an Indian chartered accountant is asking for forms you have never heard of, and somewhere in the back of your mind is the question nobody has answered straight: am I about to pay tax on this twice?
The short answer is mostly no. India taxes the gain, the United States taxes it again, and the foreign tax credit relieves most of the overlap. The longer answer is that three specific things survive that relief — and one of them catches almost everyone who sells.
Key takeaways
- India taxes the gain because the property is there. The US taxes it because you live here. Both are entitled to.
- Article 13 of the India-US treaty gives no rate relief on property gains — each country taxes under its own law. Relief comes only as a US credit under Article 25.
- Withholding in India is on the entire sale price, not the gain, and there is no minimum. A certificate obtained before closing is the only way to prevent it.
- A non-resident gets no indexation in India, so the Indian gain includes decades of rupee inflation that the US gain does not.
- The 3.8% net investment income tax cannot be reduced by any foreign tax credit. That much is genuinely taxed twice.
- If you claim an Indian reinvestment exemption, there is no Indian tax to credit — and the full US tax still applies.
Two countries, and both of them are right
India taxes the gain because the property is in India. The United States taxes the same gain because you are a US resident and the US taxes its residents on worldwide income. Neither country is overreaching, and no treaty stops either of them.
That last part surprises people who have heard there is a treaty. There is, and on this particular kind of income it does almost nothing. Article 13 of the India-US treaty says, in full, that each country may tax capital gains in accordance with its own domestic law. There is no reduced rate and no cap on what India may charge.
A tax residency certificate will not lower your Indian tax on this
You should still get one — Indian banks and buyers demand it procedurally, and it matters for other Indian income in the same year. But on a property gain it buys no rate reduction, because there is no reduced rate to claim. Anyone who tells you otherwise is thinking of interest or dividends.
Relief comes from one place only: Article 25, which obliges the United States to allow a credit for Indian income tax paid. That credit is what stops this being genuine double taxation — for most of the amount, most of the time.
What India actually taxes
Hold the property more than 24 months and the gain is long-term, taxed at a flat 12.5% under section 197(1) of the Income-tax Act 2025. Add the 4% health and education cess, and surcharge of 10% or 15% depending on income, and the effective rate lands between about 13% and 14.95%. Surcharge on capital gains is capped at 15%, so the rate does not climb indefinitely.
Sell inside 24 months and there is no concessional rate at all — the gain is taxed at ordinary slab rates, which for a non-resident can exceed 34% once surcharge and cess are added. The 24-month line is the single most consequential date in the transaction.
You do not get indexation. A resident does.
India removed indexation for property in 2024 and replaced it with the lower 12.5% rate. It then added back a choice — pay 12.5% without indexation or 20% with it — for property acquired before 23 July 2024. That relief, in section 197(3), opens with the words “in the case of an individual or a Hindu undivided family, being a resident”. A non-resident is outside it. You are taxed on the full nominal rupee gain, including thirty years of inflation.
This matters more than it sounds. A flat bought for eight lakh rupees in 1998 and sold for one crore eighty is taxed on a gain of one crore seventy-two lakh, almost none of which is economic. It is inflation and currency movement, and India taxes it anyway.
Why the buyer withholds so much
When the seller is a resident, the buyer withholds 1% of the price, and only above fifty lakh rupees. When the seller is a non-resident, the buyer withholds at the full rate on the entire sale consideration, from rupee one. Not the gain. The price.
What that gap looks like
There is a way to prevent this, and it has to happen before closing. The seller applies for a lower-deduction certificate — Form 128 under the 2025 Act, which practitioners still call Form 13 — asking the assessing officer to direct the buyer to withhold on the real expected gain instead. The certificate is prospective only. It cannot recover tax already deducted.
Start it when you find a buyer, not when you sign
The administrative standard is thirty days, but four to eight weeks from a complete filing is the realistic expectation, and longer if the officer raises questions. Filed late, it is worthless — and the money is locked up for a year or more.
The two gains will not match, and neither is wrong
India measures the gain in rupees: rupee sale price minus rupee cost. The United States measures it in dollars: the dollar value of what you paid, at the exchange rate when you paid it, against the dollar value of what you received, at the rate when you received it.
Those two numbers can differ enormously, and the direction is not predictable. The rupee has weakened against the dollar over most long holding periods, which tends to make the US gain smaller than the Indian one — sometimes dramatically. Occasionally it runs the other way.
Expect your Indian CA’s number and your US number to disagree
They are not reconciling to each other and they should not. Your preparer needs the acquisition date, the rupee cost, and the rate on that date — not the Indian gain figure. If the property was inherited, the date and value that matter are the ones at the death, and the two countries do not always agree about those either.
One more difference: if the property was ever rented, US rules require depreciation to have been claimed, and the portion of gain attributable to it is taxed at up to 25% regardless of the long-term rate. India has no equivalent recapture on residential property.
How the credit works, and where it stops
The gain is foreign-source income for US purposes because the property sits in India, and Indian income tax on it is creditable on Form 1116 in the passive category. That is the mechanism that stops most of the double taxation.
But a credit is capped at the US tax on that same foreign income. If India charged more than the US would have, the excess is not refunded — it carries back one year and forward ten, and if you have no other foreign income it may expire unused. And because long-term gains are taxed at preferential US rates, the limitation calculation reduces the foreign-source gain before applying it, which shrinks the credit further.
An Indian exemption is the worst outcome for a US filer
India lets a seller defer or eliminate the gain by reinvesting — in another Indian house, or in specified bonds. The US has no matching provision and does not recognise it. Claim it, and you pay no Indian tax, have no foreign tax to credit, and owe the entire US tax with nothing to offset it. It can be the right answer if you are moving back permanently. It is usually the wrong one if you are staying.
The section numbers for those reinvestment exemptions changed with the new Act — the provisions long known as 54, 54EC and 54F now sit at 82, 85 and 86 on most readings. That mapping comes from secondary Indian sources rather than the statute text, so ask your Indian chartered accountant to confirm the cite on the current Act before relying on it.
The 3.8% nobody warns you about
Gain on the sale of investment real estate is net investment income, and the 3.8% net investment income tax applies once modified adjusted gross income passes $200,000 single or $250,000 joint. A large property sale pushes almost everyone over those thresholds in the year it happens.
The foreign tax credit cannot touch it
The IRS states it plainly: foreign income tax credits under sections 27(a) and 901(a) “are allowed as credits only against the tax imposed by chapter 1 of the Code, and therefore may not be used to reduce your NIIT liability.” The net investment income tax sits in chapter 2A. No amount of Indian tax paid reduces it.
So on this slice of the transaction the answer to the question in the title is yes. India taxed the gain, and the United States charges 3.8% on it again with no relief available. On a forty lakh rupee gain that is a few hundred dollars; on a large sale it is real money.
There is one alternative worth modelling rather than assuming: foreign taxes taken as an itemised deduction instead of a credit do reduce net investment income. That is almost always worse overall, because a deduction is worth less than a credit — but on a sale where the credit would be largely stranded by the limitation anyway, the arithmetic occasionally flips. It is a calculation, not a rule of thumb.
The calendar problem
India’s tax year runs 1 April to 31 March. Yours runs January to December. A sale in October 2026 falls in Indian tax year 2026-27, which does not end until 31 March 2027 — and the Indian return reporting it is not due until 31 July 2027.
Your 2026 Form 1040 is due 15 April 2027. The Indian return has not been filed. The refund of over-withheld tax has not arrived. You are filing the US return with the Indian position unsettled, and that is the normal case rather than the exception.
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When the Indian refund does arrive, it reduces the foreign tax you actually paid, and US law requires you to go back and fix the year you claimed it. That is a foreign tax redetermination under section 905(c), and it generally means an amended return with a revised Form 1116. Budget for it at the time of the sale rather than discovering it two years later.
Ask your Indian CA for four documents
The rupee gain computation with acquisition date and cost; Form 26AS or the AIS showing tax actually deposited and when; the accountant’s certificate issued for the remittance; and later, the Indian return acknowledgement and refund advice. Those four make the US return defensible. The sale deed on its own does not.
Getting the money out, and what else it triggers
Sale proceeds generally land in an NRO account, and up to one million US dollars per Indian financial year can be remitted out of it under the FEMA Remittance of Assets Regulations. If the property was originally bought with foreign exchange through banking channels, or from NRE or FCNR funds, a separate route allows repatriation outside that cap — but only for two residential properties.
Every remittance needs a declaration and, above a small threshold, a chartered accountant’s certificate confirming Indian tax has been dealt with. Those were Forms 15CA and 15CB; under the 2026 rules they are Forms 145 and 146. The bank will not release funds without them.
The account itself is now reportable
An NRO account holding sale proceeds is a foreign financial account. If your foreign accounts together exceeded $10,000 at any point in the year, you have an FBAR to file, and possibly Form 8938 as well. A large sale routinely creates a reporting obligation for someone who never had one before.
One live issue at the time of writing: from 1 October 2026 a resident individual or HUF buyer no longer needs a TAN to withhold on a payment to a non-resident seller, and instead deposits against their own PAN. The form for that challan-cum-statement had not been notified as of late August 2026. If your sale is closing around that date, have your Indian CA confirm which route the buyer is using before the money moves.
Frequently asked questions
Do I have to file an Indian tax return if tax was already withheld?
You do if you want the excess back. Withholding on a non-resident’s property sale is on the entire sale price, so it almost always exceeds the real liability, and the only way to recover the difference is to file. There is no automatic refund.
Can I use the $250,000 home sale exclusion on an Indian property?
Only if it was genuinely your main home for two of the five years before the sale. The exclusion is not restricted to US property, but for most people selling an Indian flat they lived in years ago or never lived in, the ownership-and-use test is not met.
What if I inherited the property?
India generally carries over the original owner’s cost and holding period, so an inherited property can be long-term immediately. The US gives you a basis stepped up to the value at the date of death. The two systems can produce very different gains from the same sale, and the inheritance itself may require Form 3520 if it came from a non-US person and exceeded $100,000.
The buyer withheld too much and I have already closed. What now?
File the Indian return for that tax year and claim the refund. A lower-deduction certificate cannot be applied retroactively. Interest is added to the refund at a statutory rate — and that interest is separate income, taxable in the US, and not itself a creditable tax.
Should I take the Indian reinvestment exemption?
Only if you actually want the replacement asset. From a US perspective it is usually the worst outcome, because it removes the Indian tax that would have generated your foreign tax credit while leaving the US tax fully payable. Model both before deciding, not after.
Sold, or about to sell, property in India?
The expensive mistakes on this transaction happen before closing — the certificate not filed, the reinvestment exemption claimed without modelling the US side, the acquisition cost nobody can evidence. We handle the US return and tell you what to ask your Indian CA for, in time for it to matter.
This article is general educational information, not individualized tax or investment advice. Figures cited are subject to IRS adjustment. Consult a qualified professional about your own facts.