The US steps up your inherited property's cost to today. India keeps the original. That gap is a tax trap.

Here is the trap in one sentence: when you inherit Indian property and you are a US taxpayer, the two countries assign your property completely different costs, and the gap between them is where the tax pain lives.

The US is generous. Under its rules, inherited property, including property abroad, gets a step-up: your cost is reset to the property's fair market value on the day the person you inherited from died. Everything that happened to the value before that death is wiped off your slate. If you sell soon after, your US gain can be close to zero, because your cost and the sale price are almost the same.

India is not generous here. Under Section 49 of the Income-tax Act, an heir does not get a step-up. Your cost is what the original owner paid for the property, carried across to you, however long ago that was. A flat bought in 1990 for a few lakh keeps that few-lakh cost in your hands, even though it is worth crores now. So on the Indian side you are taxed on decades of appreciation the US has already forgiven.

Two costs, one property. That mismatch is the whole story.

The Indian gain is the one that hurts, for two compounding reasons.

First, no step-up. Your cost is the original owner's cost, so India taxes the entire rise in value across their ownership and yours, not just the rise since you inherited. On old family property that can be almost the whole sale price.

Second, as an NRI you no longer get indexation. Until the 2024 Budget, a resident or NRI could at least inflate that old cost for inflation, which softened the gain. That indexation is gone for these sales; the long-term rate is a flat 12.5 percent applied to the raw gain, cost subtracted with no inflation adjustment. So the base is large and the softener is removed.

Put together, an heir selling an old Indian flat can face Indian capital-gains tax on a gain measured from a 1990s price, at 12.5 percent, with no indexation, while the very same sale produces almost no US gain. The Indian bill is real money, and the US step-up does nothing to reduce it.

There is a single, valuable exception on the Indian side, and missing it is one of the most expensive mistakes an heir makes.

If the original owner acquired the property before 1 April 2001, Indian law lets you treat its fair market value as on 1 April 2001 as your cost, instead of the original, much lower price. This is India's own limited step-up, not to the date of death, but to the start of the century. For property bought in the 1970s, 1980s or 1990s, the 2001 value is far higher than the original price, so using it can cut the Indian gain, and the tax, sharply. The 2001 value you use is capped at the property's stamp-duty value for that date.

To claim it you need a registered valuer's report estimating the property's fair market value as on 1 April 2001. That report is worth commissioning well before the sale, because reconstructing a credible 2001 valuation is easier with time and documents in hand than in a rush at closing.

So even though India will not honour the US step-up, it gives you a step-up of its own for older property. Use it.

The instinct is that the US-India treaty and the foreign tax credit will net it all out. They help, but they cannot fully close this particular gap, and it is worth understanding why.

The foreign tax credit lets you offset the Indian tax you paid against your US tax on the same gain, but only up to the US tax on that gain. Because the step-up shrank your US gain to almost nothing, your US tax on it is almost nothing too, so there is very little for the large Indian tax to be credited against. The excess Indian tax is not refunded by the US; at best it becomes a foreign tax credit carryover you may or may not ever use. In practice, the Indian tax is the tax you actually bear.

There is one piece of good mechanics, at least. Because the property is Indian real estate, US law already treats the gain as foreign income, sourced to where the property sits, so it goes straight into the foreign-tax-credit basket with no treaty re-sourcing needed. That is a step share sellers have to take and property sellers do not. It does not lift the ceiling, though: the credit still cannot exceed the small US tax on the gain.

The honest conclusion: the treaty stops you paying full tax twice, but the basis mismatch means the Indian tax is largely a cost you carry, so the planning is about making the Indian gain as small as it legitimately can be, not about expecting the US credit to erase it.

The plan is the same shape as the problem: handle each country on its own terms, and get the valuations before you sell, not after.

Value the property at the date of death, for the US. This fixes your US step-up basis, and it is far easier to get a credible valuation close to the death than years later. Keep the report.

Value it as on 1 April 2001, for India, if the original owner held it before then. This is your Indian cost, and it is usually much higher than the original price. A registered valuer's report is what the department will look for.

Use the Indian reinvestment reliefs. If you reinvest the gain in another Indian house or in specified capital-gains bonds within the deadlines, Sections 54 and 54EC can defer or remove part of the Indian tax, and these are open to NRIs.

Coordinate the two returns. A CA on the India side and a US preparer on the US side, working together, so the Indian tax paid is credited where it can be, the timing lines up across the two tax years, and nothing is taxed twice by accident. This is one of the clearest cases where one professional on each side, talking to each other, saves real money.