When a private US property deal ends, an Indian client's money comes home as a liquidating distribution, the final payment made after the property is sold and the holding company is wound up. That moment is becoming more common. Colliers' capital markets research team, reading MSCI data, said on 28 October 2026 that third-quarter transaction volume across the five traditional property sectors rose 71 per cent from a year earlier. Most of that growth came from large portfolio and entity-level deals, while single-asset sales rose a more modest 6 per cent. Six days earlier, CBRE reported that its US property sales revenue for the quarter was up 37 per cent.
The payment passes through three sets of rules before it reaches the client. The sponsor's agreement decides how much of the sale money the client receives, US tax law decides what the holding company pays before it distributes anything, and Indian tax law decides how the client is taxed on what arrives. An advisor who explains those three steps before the sale, rather than after the money lands, spares the client surprises at filing time. Our guide to US commercial real estate investment for advisors explains how these deals are built at the start.
How a liquidating distribution reaches an Indian client
Offshore investors in a private US property deal, including Indian clients, usually invest through a US corporation, known as a blocker, which holds the property interest on their behalf. When the sponsor, the firm that found, financed and managed the property, decides to sell, the proceeds first repay any loan secured on the property. What remains belongs to the deal's investors, and the blocker's share reaches its shareholders when the corporation is wound up.
The order of payment among investors is set by the distribution waterfall in the operating agreement. In most deals, cash goes first to return the capital investors put in, then to the preferred return, a priority claim on profits that sets an order of payment and is not a promise, and only then to the sponsor's share of profits. Our explainer on how a distribution waterfall decides who gets paid covers each tier in turn. The sale price and the client's payment are therefore different numbers.
What the US blocker pays before anything is distributed
Because the blocker is a US corporation, it pays US corporate tax on its gain from the sale. The federal rate is 21 per cent of taxable income under Section 11(b) of the US Internal Revenue Code, and state tax may apply on top, depending on where the property sits. The corporation pays this tax, not the client, so it reduces the amount available to distribute rather than arriving as a separate bill.
What happens next is the reason the structure is used. A rule in Section 897(c)(1)(B) of the Code, often called the cleansing rule, says shares in a corporation stop counting as a US real property interest once the corporation has disposed of all its US property in transactions where the full gain was taxed. Raveum's US real estate tax guide for Indian investors explains that, once this condition is met, the US charges no withholding on the final liquidating distribution paid to Indian shareholders. The condition matters, so advisors should confirm from the offering documents that the blocker will sell every property it holds before it is wound up.
How the payout is taxed in India
For the client, the payment is money received from a company in liquidation. Under Section 68(2) of the Income-tax Act, 2025, the shareholder is taxed under the head capital gains on the money received, reduced by the part treated as dividend. Section 2(40)(c) treats a liquidation payment as dividend to the extent it comes from the company's accumulated profits. The client's CA therefore has to split one payment into a dividend part and a capital gains part, using figures from the blocker's accounts.
The capital gains part depends on how long the client held the shares. Under the Act, an asset held for more than 24 months is long-term, with a shorter 12-month period only for listed securities and certain units, so shares in an unlisted US blocker need more than 24 months. Long-term gains on such shares are taxed at 12.5 per cent under Section 197, while short-term gains are taxed at the client's slab rate. The Act also leaves out, for a share in a company in liquidation, the period after the company goes into liquidation, so the clock stops when the wind-up begins rather than when the money arrives.
For example, suppose a client's capital gain under Section 68(2), after removing the dividend part and the cost of the shares, works out to ₹10 lakh. If the shares were held for more than 24 months, tax at 12.5 per cent comes to ₹1.25 lakh, before surcharge and cess. If they were held for 24 months or less and the client is in the 30 per cent slab, the same gain attracts ₹3 lakh. The dividend part is taxed separately, and the CA confirms both figures for the tax year in which the payment is received.
When the money comes back to India
The Liberalised Remittance Scheme, which lets a resident individual send up to USD 250,000 abroad each financial year, also sets rules for money coming back. According to the RBI's frequently asked questions on the scheme, a resident may retain and reinvest income earned from investments made under the scheme. Foreign exchange that is received or realised and not reinvested, however, must be repatriated and surrendered to an authorised person within 180 days. A client who plans to keep exit proceeds abroad should confirm the treatment with the authorised dealer bank before the payment arrives.
The same RBI answers add that bringing proceeds home does not restore any of the year's limit, so a client who has already remitted the full USD 250,000 in a financial year cannot send more under the scheme, even after earlier investments have come back. If the client later reinvests abroad, the new remittance is treated like any other, and the rules in our guide to TCS on foreign remittance apply to it afresh.
The risks that sit around an exit
An exit is also the point where the risks of private property become final. The sale price may be lower than the purchase price, and after the lender is repaid the client may get back less than they invested, or nothing at all. The sponsor usually decides when to sell, so the timing may not suit the client, and a weak market can delay it. Leverage magnifies any fall in value. Currency movements between the original remittance and the final payment change what the client receives in rupees, and a client with much of their wealth in one deal carries that concentration to the end.
What advisors should do before a client's deal exits
Start with the documents. Read the waterfall in the operating agreement and the description of the blocker in the offering documents, and confirm that the sponsor plans to sell every property in the blocker before winding it up. Ask the sponsor when it expects the final payment and whether any amount will be held back for costs after closing. Then brief the client's CA early, because the split between dividend and capital gains depends on figures from the blocker's accounts, and the holding period depends on dates the client may not have kept.
Next, settle the money question. Agree with the client whether the proceeds will come home or be reinvested abroad, confirm the 180 day position with the bank, and make sure the payment is reported in the right tax year. Advisors who introduce eligible clients through Raveum's partner page will recognise the division of work, because Raveum handles KYC, agreements and US tax forms, while the client's Indian tax position stays with the client and their CA.
A busier US sales market says nothing about whether any one client's property will sell well. It does mean that more Indian clients will see a private US investment end, often after years in which the structure was easy to forget. The liquidating distribution is where the sponsor's agreement, US tax and Indian tax finally meet in one payment. An advisor who has read the waterfall, checked the blocker's plan and briefed the CA before that day turns a confusing payment into one the client can file correctly. Our guide to US commercial real estate for advisors in India shows how that structure was built.
Frequently asked questions
What is a liquidating distribution?
A liquidating distribution is the final payment a company makes to its shareholders when it is wound up. In a private US property deal held through a blocker corporation, it usually follows the sale of the property, after the lender is repaid, the waterfall is applied and the corporation has paid its US tax on the sale.
Is a liquidating distribution taxable in India?
Yes. Under Section 68(2) of the Income-tax Act, 2025, money a shareholder receives from a company in liquidation is taxed as capital gains, after removing the part treated as dividend because it comes from the company's accumulated profits. That dividend part is taxed separately. The client's CA works out both figures for the tax year of receipt.
Does the US withhold tax on a liquidating distribution to an Indian investor?
Under the cleansing rule in Section 897(c)(1)(B) of the US Internal Revenue Code, shares stop counting as a US real property interest once the corporation has sold all its US property in fully taxed sales. Raveum's tax guide explains that, once this condition is met, the US charges no withholding on the final liquidating distribution.
How long must a client hold blocker shares for long-term capital gains?
Shares in an unlisted US blocker corporation become long-term capital assets when held for more than 24 months under the Income-tax Act, 2025. Long-term gains are then taxed at 12.5 per cent under Section 197, before surcharge and cess. The period after the company goes into liquidation does not count towards the holding period.
Must exit proceeds from a US investment be brought back to India?
The RBI's LRS rules let a resident retain and reinvest income earned on investments made under the scheme. Foreign exchange that is realised and not reinvested must be repatriated and surrendered to an authorised person within 180 days. Clients who plan to keep sale money abroad should confirm the treatment with their bank first.
What risks should a client understand before a US property deal exits?
The sale price may be below the purchase price, and after the loan is repaid the client may recover less than they invested, or nothing. The sponsor usually controls timing, so a sale can be delayed. Currency movements change the rupee value of the final payment, and a large holding in one deal concentrates all of these risks.
This article is for general education and is not tax, legal or investment advice. Rules change and depend on individual circumstances. All investing involves risk, including loss of capital, illiquidity and currency movements. Offerings on Raveum are available to eligible investors only and are not open to the general public.
