Cross-Border Estate Tax: U.S. and India Reporting for Decedent’s Assets

When a U.S. citizen or U.S. tax resident dies while holding property, bank accounts, or investments in India, families face a two-country compliance puzzle that touches estate tax, India assets, and reporting rules on both sides of the ocean. The most immediate issue: U.S. law counts worldwide assets for estate tax purposes, while India no longer levies an estate duty but does tax capital gains when heirs sell inherited property. Executors must coordinate valuations, filings, and remittances carefully to avoid penalties and delays.

According to analysis by VisaVerge.com, cross-border estates involving India are rising as more Indian-origin families split wealth across countries. In practice, that means the executor often manages probate in the United States 🇺🇸 while collecting documents in India, arranging appraisals, and planning for possible sales to settle debts or distribute inheritances.

U.S. filings triggered by death

For a deceased U.S. citizen, worldwide assets—including India assets—belong in the U.S. estate tax calculation. If the gross estate exceeds the filing threshold, the executor must file the federal estate tax return, Form 706. The Internal Revenue Service requires foreign assets to be listed with proper valuations in Indian rupees and converted to U.S. dollars using IRS yearly exchange rates. Executors can review instructions and the filing package at the IRS page for Form 706. The source material notes that the filing threshold is “currently over $12.92 million in 2025,” subject to inflation rules.

Heirs who receive large bequests from abroad may also face separate U.S. reporting:

• If an individual receives foreign inheritance over $100,000 in a calendar year, Form 3520 applies, which reports the foreign gift or bequest to the IRS. The form and instructions are available at Form 3520.

Foreign accounts inherited from the decedent can create more compliance layers:

• If the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year, the FBAR — FinCEN Form 114 — is required. Details are available at the Financial Crimes Enforcement Network’s page for the Report of Foreign Bank and Financial Accounts.
• Form 8938 applies if the value of specified foreign financial assets crosses the IRS thresholds (for example, $200,000 on the last day of the year or $300,000 at any time for certain single filers). The IRS page for Form 8938 explains these thresholds by filing status.

Beyond estate filings, the estate may need to file a U.S. income tax return to report post-death income. Income from India assets—like rent, dividends, or interest—belongs on the estate’s or heir’s U.S. return, depending on timing and distribution.

• If the heir sells inherited property, U.S. capital gains are generally computed using the fair market value on the date of death as the basis.
• Where India taxes the sale, foreign taxes paid can often be claimed as a foreign tax credit, subject to IRS limits and documentation.

India tax and currency controls

India abolished estate duty in 1985. That means no India estate tax at death. But taxation activates when assets generate income or are sold.

• If an heir sells an inherited apartment in Mumbai, India capital gains tax applies, with the cost typically based on the fair market value at the date of death.
• Heirs who are tax residents of India must also follow local disclosure rules, including Schedule FA of the Indian Income Tax Return for reporting foreign assets.

For Non-Resident Indians (NRIs) inheriting India assets, the general rule is simpler:

• There is no India filing duty unless they have India-sourced income, such as rent, interest, or sale proceeds.
• But NRIs must still settle India capital gains tax if they sell property located in India.

Transferring funds out of India after a sale introduces another layer: repatriation under India’s foreign exchange framework (FEMA). Banks often ask for the death certificate, probate or succession certificate, proof of inheritance, property sale documents, and tax clearance before sending money abroad.

• Heirs should work closely with the bank’s compliance desk and keep copies of every document, including valuation reports and receipts for taxes paid in India.
• The Reserve Bank of India’s guidance on remittance of assets offers a policy overview; see RBI’s Master Direction on remittance of assets for regulatory context.

A common pitfall is timing. If the estate sells the property early to settle liabilities, the executor must coordinate India tax withholding, clear any tax assessments, and provide proof to the bank before repatriation. If the heir sells later, their own residency and tax profile may change the reporting and timing of credits claimed in the United States.

Practical coordination also matters for exchange rates. The IRS expects estate valuations to use its prescribed annual exchange rates for Form 706. India capital gains are computed in rupees, with indexation and local rules applying as relevant. Keeping a clean paper trail for currency conversion, valuation dates, and closing statements is vital for both countries’ compliance checks.

Case study

Mr. Singh, a U.S. citizen living in the United States, dies in 2025. He owns:

• A Mumbai flat worth ₹2 crore (~$240,000)
• Indian bank accounts worth ₹30 lakh (~$36,000)
• A U.S. brokerage account of $500,000

His will names his U.S.-based daughter as executor.

• Under U.S. rules, the worldwide estate includes the India assets.
• If the gross estate crosses the threshold, she files Form 706 and includes the India valuations converted to dollars per IRS rates.
• If she receives more than $100,000 in foreign inheritance, she files Form 3520.
• If aggregate foreign accounts exceed $10,000 during the year, she files the FBAR (FinCEN Form 114).
• She files Form 8938 if her foreign assets cross IRS thresholds.
• If she sells the Mumbai flat, India capital gains tax applies; any India tax paid may be claimed in the United States as a foreign tax credit, subject to rules.
• To bring proceeds to the United States, she follows FEMA repatriation steps with her Indian bank, providing required documents.

Roles and responsibilities

Clarity on roles helps:

• The executor oversees estate filings and often initiates India valuations and probate steps.
• Heirs receiving specific assets should be ready to handle U.S. reporting rules tied to those assets—especially for accounts and property that may generate income before final distribution.
• Where a trust is involved, trustees may need to file U.S. forms such as Form 3520/3520-A; the exact duties depend on the structure, but executors should verify trust reporting with counsel.

Residency questions arise fast:

• Executors should confirm U.S. tax residency of heirs, India residency status for local filing duties, and the impact of treaty positions where applicable.
• A well-planned approach can prevent double taxation and reduce delays in transferring funds.

Practical checklist for executors and heirs

Several steps can reduce stress during a difficult time:

1. Get formal appraisals of India property and keep supporting photos, reports, and comparable sales.
2. Record exchange rates used for each valuation and filing.
3. Centralize documents:
   • Will
   • Probate order or succession certificate
   • Death certificate
   • Property title papers
   • PAN/Aadhaar where relevant
   • All tax payment receipts
4. Confirm bank procedures for repatriation before a sale, including required documents and expected processing times.
5. Track U.S. forms and triggers:
   • Form 706 for estates above the threshold
   • Form 3520 for foreign inheritance over $100,000
   • FBAR for foreign accounts over $10,000
   • Form 8938 if foreign asset thresholds apply
6. Retain proof of India taxes paid to support any foreign tax credit claim in the United States.

Common traps to avoid:
– A bank account balance may briefly tip over the $10,000 FBAR line.
– A property sale that clears in rupees could be misreported in dollars without the correct IRS rate.
– A trust clause could trigger Form 3520-A obligations that no one anticipated.

Recommended sequence for professionals

Professionals familiar with both systems can help executors set the right sequence:

1. Determine the estate’s filing duties first.
2. Gather India valuations and supporting documentation.
3. Decide whether to sell or transfer assets in kind.
4. Plan for India capital gains if a sale is likely.
5. Prepare the repatriation file early so funds can move without last-minute surprises.

Families who take these steps often report smoother outcomes, faster distributions, and fewer questions from either tax authority.

Final observations

The bigger picture is clear. As Indian-origin professionals build wealth in two countries, coordinated planning becomes part of responsible family stewardship. For current executors and heirs, the immediate goal is compliance:

• Count all India assets in the U.S. estate tax review.
• Follow India’s capital gains and FEMA processes when selling or sending funds abroad.
• Satisfy U.S. reporting rules for foreign inheritances and accounts.

The system rewards those who keep organized records, match forms to thresholds, and respect each regulator’s documentation demands.