U.S. Gift and Inheritance Planning for Indian Assets: Practical Rules

Advisers in Mumbai and New Delhi said this week that Indian families with ties to the United States 🇺🇸 are facing a sharper focus on cross-border filings as year-end transfers pick up, pushing U.S. Gift & Inheritance Planning to the forefront. The pressure centers on two U.S. filings: Form 709 for gifts by U.S. persons and Form 3520 for large foreign gifts received by U.S. taxpayers. While there are no major rule changes announced for India, professionals warn that missed U.S. filings can bring steep penalties and long audits that spill across borders.

At issue is the growing flow of support from adult children in America to parents in India, and the reverse flow of inheritances and lifetime gifts moving from India to the U.S. As one planner described it, a simple bank transfer to help a parent buy a flat or a child’s down payment in the U.S. can trigger unexpected U.S. paperwork. The core message is simple: document the money trail, keep property records tight, and file the right U.S. forms on time to avoid costly mistakes.

Key U.S. filings to watch

• Form 709 (Gifts by U.S. persons)
  • Under U.S. rules, U.S. citizens and residents can gift up to $18,000 per recipient in 2025 without using their lifetime exemption.
  • Amounts above that generally require filing Form 709. The form rarely triggers immediate tax, but it starts the clock on the lifetime exemption and gives the IRS a record of cross-border transfers.
  • The IRS explains scope and deadlines on its official page for Form 709.
• Form 3520 (Large foreign gifts received by U.S. taxpayers)
  • When a U.S. taxpayer receives more than $100,000 in money or assets from a non-U.S. person in a year, there is a duty to file Form 3520.
  • Failure to report foreign gifts can lead to severe penalties and long, painful unwinds.
  • Guidance and thresholds are on the IRS page for Form 3520.

Estate and inheritance issues

• U.S. citizens are taxed on worldwide estates, but inheriting itself is not always the taxable event in the family examples cited.
• Example: If a U.S. citizen inherits an apartment in India worth around ₹1 crore, there is no U.S. estate tax solely because it was inherited.
• The tax issue often arises later at sale: U.S. capital gains tax can apply, and the cost basis must be documented carefully. Missing records can inflate gains on U.S. returns.

Practical recordkeeping: what advisers recommend

Planners in India emphasize that paperwork in India and U.S. tax rules meet here. They urge heirs and givers to keep:

• Registered property deeds
• Valuation reports
• Bank remittance trails
• Deeds, gift letters, and currency conversion logs

They also recommend:

• Drafting India-compliant wills for non-resident Indian (NRI) asset owners so successors can prove ownership cleanly.
• Preparing documentation in advance to reduce errors on U.S. returns and speed up later sales.

“Families that prepare deeds, gift letters, and currency conversion logs in advance reduce errors on U.S. returns and speed up later sales,” according to analysis by VisaVerge.com.

Investment and PFIC risks

• Advisers warn about older mutual funds and bond holdings that U.S. law might treat as PFICs (Passive Foreign Investment Companies).
• PFIC classification can generate high U.S. tax and complex annual filings.
• Recommended actions:
  • Separate PFIC-type investments from other assets during estate planning.
  • If inherited, get prompt U.S. tax advice before selling or switching to avoid locking in PFIC charges.

Currency conversion and ledgers

• Money flowing from the U.S. to India typically converts dollars to rupees. Experts stress that currency conversion rates must be tracked for U.S. reporting, especially when gifts exceed the annual exclusion and require Form 709.
• For receivers in the U.S., the Form 3520 threshold ($100,000) is the red line for large family gifts or help with home purchases.
• Keep a clear ledger with:
  1. Date sent
  2. Amount in original currency
  3. Rupee conversion used
  4. Recipient
  5. Purpose

Indian tax considerations

• Gifts from close relatives are typically not taxed in India, but income generated from gifted assets (for example, rent) can be taxable.
• Indian capital gains tax can apply when a gifted or inherited asset is sold.
• Families consult India’s official portal at the Income Tax Department and align those records with U.S. filings to reduce cross-border inquiries.

What’s changing — and what’s not

• Advisers report no sweeping new Indian measures this month targeting cross-border gifts or inheritances.
• The shift is from increased scrutiny on the U.S. side, as filings expand and data sharing improves.
• Many families use the IRS resources on Estate and Gift Taxes alongside the Form 709 and Form 3520 instructions as a year-end checklist.

Common problems and fixes

• Problems often occur when paperwork lags behind reality:
  • Long delays selling inherited Indian property without clear probate or proof of upgrades that should raise cost basis.
  • Missing rupee conversions for older transfers create back-and-forth with U.S. preparers.
• Typical fixes are simple but time-consuming:
  1. Rebuild records
  2. Reconcile dates
  3. File late forms with explanations acceptable to both Indian and U.S. authorities

Practical checklist (recommended steps)

• Keep registered documentation for Indian assets.
• Draft India-compliant wills for NRI property.
• Avoid PFIC exposure in inherited portfolios when possible.
• Track currency conversions and keep conversion logs.
• Mark calendars for U.S. deadlines tied to Form 709 and Form 3520.
• Read official IRS pages before sending or receiving large transfers:
  • Form 709
  • Form 3520
  • Estate and Gift Taxes

Important: Missing or late filings can lead to penalties, stalled transactions, and long audits that create headaches on both sides of the ledger.

Families in India and the U.S. say they do not want a tax mistake to overshadow a gift meant to help. With more wealth moving between generations and countries, planners expect the paperwork load to keep climbing. For many, the message is less about fear and more about rhythm: move funds with clear records, read the official pages before sending or receiving, and treat U.S. Gift & Inheritance Planning as part of normal family finance rather than a last-minute scramble.