A quick note before we begin:
The information in this post is based on Indian tax and foreign-exchange laws as of the time of writing. These rules evolve frequently — so always consult a qualified Chartered Accountant (CA) in India before acting on anything here.
A few friends of mine recently (and over the years) have asked me to write about estate planning and transfer of assets from parents who reside in India to their children who live overseas (in a lot of the cases of my friends — specifically in the US).
This is both a complex and, frankly, emotional topic for many first-generation immigrants from India, like myself. For our parents, wealth isn’t just numbers — it’s years of work, memories, and identity tied up in homes, land, and savings. For us, the children, the challenge is how to navigate all of this across two countries, two tax systems, and two sets of laws — while keeping it simple and doing it right.
So today’s post is my attempt to lay out a structure for how to think about this. Everyone’s situation will differ — but I hope this gives you a framework to start planning.
As you can imagine, this is a very specific post for a very specific audience — not typical of my blog posts. But I am writing this because I felt it would be helpful to share all the knowledge I gained through my own experiences and research.
Start with the Basics
If you’re an NRI (Non-Resident Indian), the first step is to make sure your banking setup in India is compliant. Many of us still have old savings accounts from when we lived in India — those need to be closed or converted.
You’ll need two key things:
- An NRE/NRO account with a reputed bank in India. The NRE account is for income earned abroad and is fully repatriable; the NRO account is for income that still arises in India, such as rent, interest or dividends.
- A PAN card, which is essential for almost all tax and financial transactions.
Getting these basics sorted early will make future transfers and compliance far easier.
2️⃣ Helping Parents Create a Will
This is where most of us hit an emotional wall. Talking to our parents about wills and estate planning often feels awkward. Many Indian parents avoid the topic — sometimes out of discomfort, sometimes because they assume everything will “just work out.”
But the reality is, India’s inheritance laws can be complicated. They vary not just by religion but often by state or even city. Without a will, transferring assets can take months — sometimes years — and can involve courts, documentation, and a lot of frustration.
Encouraging your parents to make a simple, registered will is one of the best things you can do. It doesn’t have to be elaborate — just clear about who gets what and who will execute it. Having this in place avoids future delays, disputes, and confusion.
3️⃣ Gifting vs Inheriting — Two Paths to the Same Goal
When it comes to passing on assets, there are really two broad ways it can happen:
- Parents gift assets while they’re alive.
- Assets pass on as inheritance after they’re gone.
Both are tax-free to receive — but the difference lies in what happens next, especially with real estate.
If your parents gift you money or property while they’re alive
If your parents gift you money or property, there are a few things to know:
Tax-free for you: Gifts between parents and children are completely exempt of taxes in India.
Foreign-exchange limit: Under India’s Liberalised Remittance Scheme (LRS), each individual (resident Indians) can transfer up to USD 250,000 per financial year abroad without prior RBI approval. So if both parents choose to do this, they can together gift up to USD 500,000 per year.
How the money moves: Parents can send money directly from their Indian bank account to your US account — it doesn’t need to go through your NRO or NRE account. The bank will process this as a “gift to a close relative” under LRS.
Bank documentation: The sending bank will usually ask for a few standard forms — Form A2 (a declaration of purpose), Form 15CA (confirming tax status), and sometimes Form 15CB (a CA certificate). For simple family gifts, some banks waive the 15CB requirement.
If it’s property: You’ll inherit your parents’ original cost of acquisition (unless it was bought before April 2001, in which case you can use the fair-market value as of April 1, 2001). When you sell it later, you’ll owe capital-gains tax based on this value, and you also inherit your parents’ holding period for that property. There has been historically the concept of indexation in India to revalue the original cost basis but that rule has changed as we will note in the next section.
Quick note on holding period:
In India, a property is considered a long-term capital asset if it’s held for more than 24 months (2 years) before sale. Anything sold within 24 months is short-term and taxed at regular income-tax slab rates.The good news is that when a property is gifted or inherited, the recipient also “inherits” the parent’s holding period — so most gifts of long-owned family homes will qualify as long-term capital assets right away.
If you inherit the property after their passing
When you inherit property, there’s no inheritance tax in India. The property passes to you through the will (or succession, if there’s no will).
For future sale, your cost basis is still your parents’ original purchase cost (or fair-market value as of April 1, 2001, if applicable). You also inherit their holding period, so most inherited properties qualify as long-term assets.
Here’s what changed recently in India’s laws:
- In 2024, the government overhauled how long-term capital gains (LTCG) are taxed. Under the Finance Act 2024, most long-term property sales are now taxed at a flat 12.5%, and the indexation benefit has been largely removed. A quick word on indexation, since it often causes confusion. In India, when you sell a long-term asset like property, the original cost could be “indexed” for inflation. So, a flat bought in 1995 for ₹10 lakh might be treated as if it cost ₹50–60 lakh in today’s terms, reducing your taxable gain.
- At the time of writing this post, some tax professionals believe there may be limited relief or “grandfathering” for properties purchased before July 23, 2024, allowing resident taxpayers to still opt for the older 20% with indexation method — but whether NRIs can use that option remains unclear. In practice, most banks and CAs now treat property sales (including for NRIs) as taxable at 12.5% without indexation for transfers after that date.
Once you sell the property, you can repatriate the sale proceeds up to USD 1 million per financial year after paying applicable taxes. The bank will again require documentation like Form 15CA/CB to verify tax payment before transferring funds abroad.
And this is where the US concept of “step-up in cost basis” differs. In the US, when someone passes away, the cost basis of their assets is “stepped up” to the market value at the time of death — meaning heirs often owe little or no capital-gains tax if they sell soon after. In India, there is no such step-up. The cost remains what your parents paid (or its 2001 value), even if decades have passed.
That’s a subtle but important distinction that surprises many people.
💰 Tax treatment for sale of assets in India
Whether the assets/ property came to you as a gift or through inheritance, the tax treatment at sale is the same in India.
You’ll pay capital gains tax only when you sell, not when you receive it.
In the case of real estate assets, since you inherit your parents’ original cost and holding period, most such properties qualify as long-term capital assets and are taxed at 12.5% without indexation under the new rules introduced in 2024
💡 A Quick Word on Tax Optimization
A question that often comes up is — “Can we avoid taxes in this process?”
The honest answer: not really. You can’t avoid taxes altogether, but you can certainly plan to optimize them.
That usually means:
Using indexation in India to reduce taxable gains when selling long-held property. (As noted, this may not be an option any longer.)
Claiming a foreign-tax credit in the US so you’re not taxed twice on the same gain.
Timing or spacing out sales and transfers across years to avoid a big one-time tax shock.
Avoiding reinvestment traps: While you can defer or eliminate capital gains tax in India by reinvesting in another property (under Sections 54 or 54EC), that often defeats the purpose of repatriating the money to the US.
Beyond that, any complex or sophisticated tax strategies are really beyond the scope of this article — and best handled with a good CA in India and a CPA in the US working together.
The US Side — What Happens When You Receive Money or Assets
Here’s where most NRIs start to panic — “Do I owe tax in the US if my parents gift or leave me money?”
The short answer: no, you don’t.
Gifts or inheritances from your parents are not taxable in the US, but you may have to report them.
If you receive more than $100,000 in a year from foreign individuals (like your parents), you’ll need to file Form 3520 with the IRS. It’s just a reporting form — no tax is due on the gift itself.
If you later earn income from that money — say interest, rent, or dividends — that income becomes taxable in the US. And if you sell inherited property in India, you’ll likely pay tax in India first and then report it on your US return, claiming a foreign-tax credit for what you already paid.
Finally, if you hold significant balances in India, you may also need to file:
- FBAR (FinCEN 114) if total foreign balances exceed $10,000 at any time, and
- Form 8938 if your foreign assets are above certain thresholds.
These are purely disclosure forms — they’re about transparency, not extra tax.
One thing to remember and in this case, works to your benefit is – Because of rupee depreciation, many NRIs find that their US taxable gain is close to zero — and any Indian tax paid usually wipes out the rest through the foreign tax credit.
Bringing It All Together
Cross-border wealth transfer is one of those topics that mixes love, legacy, and legal complexity. It’s not fun to talk about, but getting clarity now can save a world of confusion later.
If you’re a US-based child of Indian parents, here’s a simple way to think about it:
- Get your banking and documentation in order.
- Encourage your parents to make a will — it’s truly an act of love.
- Know that gifts and inheritances are tax-free to receive, but selling or earning from them later will have tax implications.
- Keep both countries’ paperwork clean — one CA in India, one CPA in the US, and ideally, have them coordinate.
At the end of the day, this isn’t just about transferring wealth — it’s about continuing your family’s story with clarity and care.
Thank you for reading. I wish you luck in your financial journey.
Disclaimer: I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice.
