US Real Estate Tax Guide for Indian Investors: How the C-Corp Structure Is Taxed in the US and in India

The one-paragraph answer

The investment structure

Two kinds of investor sit in the same deal, entering at different levels. Everything else in this guide follows from where you enter.

Indian residents fund their subscription under the RBI's Liberalised Remittance Scheme, which is why the last section of this guide is about TCS on the outward remittance. How the LRS itself works is covered in the RBI LRS guide.

While the property earns: the operations phase

The US LLC is a pass-through

The US LLC is treated as a pass-through entity for tax purposes. It does not pay federal income tax at the corporate level. Instead, all net income or losses generated by the real estate property pass directly through to its owners, the US C-Corp and the US investors, and are reported to each of them on Form K-1.

The US C-Corp pays the corporate tax

Once the net income reaches the US C-Corp via the K-1, the C-Corp is responsible for corporate-level taxation. It pays federal tax, and state-level tax where applicable, on the year's net income.

Withholding waits for an actual distribution

A primary benefit of this structure is the timing of withholding taxes:

• Withholding tax on distributions from the US C-Corp's accumulated earnings and profits (E&P) to Indian investors applies only when a distribution is actually paid out of the US C-Corp.
• Tax is deferred for as long as the earnings remain reinvested or held within the C-Corp wrapper.

When cash is distributed: the waterfall and the DTAA

The distribution waterfall

When the US C-Corp distributes accumulated cash to Indian investors, the funds are categorised in a strict order under US tax law (IRC Section 301):

Claiming the foreign tax credit in India

To avoid double taxation on dividend distributions, Indian investors can use the Double Taxation Avoidance Agreement (DTAA) between the USA and India.

US-India tax mechanics, worked through

Take an Indian investor who allocates USD 100,000 into a US real estate deal. In Year 1 the investor is allocated a rental distribution of USD 500 and chooses not to withdraw it, so no US withholding tax applies in Year 1. In Year 2 the allocated distribution rises to USD 650 and the investor makes a partial withdrawal of USD 100. US withholding tax is triggered only on the USD 100 actually withdrawn: under the India-US DTAA, 25% applies to Indian individual investors, so USD 25 is withheld at source in the US. What happens next depends on the investor's Indian tax bracket.

When the property is sold: the final liquidating distribution

US tax perspective: the "cleansing rule"

When the real estate property is eventually sold and the entity is wound up:

• The property sale occurs at the LLC level and passes to the C-Corp. The C-Corp recognises the gain and pays its applicable capital gain tax on the net sale consideration less the purchase price.
• Under the US tax "cleansing rule" (IRC Section 897(c)(1)(B)), once a corporation disposes of all its US real property interests and recognises the full compliance tax, its shares cease to be treated as a US Real Property Holding Corporation (USRPHC).
• Consequently, US withholding tax does not apply to the final liquidating distribution paid out to the foreign Indian investors.

Indian tax perspective: tax on liquidation receipts

Under Section 46(2) of the Indian Income Tax Act, money received by a shareholder from a company upon liquidation is treated as a capital gain transaction, calculated as the total money received minus any deemed dividends and the original cost of acquisition.

• Holding period: for unlisted foreign corporate shares, the threshold for an asset to be considered long-term is 24 months.
• Long-term capital gains (LTCG): if the Indian investor holds the C-Corp shares for more than 24 months, the gain is taxed at a flat rate of 12.5% without indexation benefits.
• Short-term capital gains (STCG): if held for 24 months or less, the gains are taxed at the investor's applicable individual income tax slab rates.

How US investors differ

For comparison, if a US-based investor invests directly through the US LLC:

• Accrual-basis taxation: because the LLC is a pass-through entity, the net income passes directly to the US investor's personal tax return.
• The US investor must accrue and pay tax on the income in the year it is earned, irrespective of whether an actual cash distribution is made or the cash is retained inside the LLC.

Participation for US investors is limited to verified accredited investors under SEC Regulation D Rule 506(c). See Invest from the USA.

TCS when the money leaves India

When Indian investors remit funds out of India to invest in the US C-Corp under the Liberalised Remittance Scheme (LRS), the following Tax Collected at Source (TCS) rules apply:

How to recover TCS

TCS remittance examples (INR 1,000 baseline)

Where TCS sits in the wider remittance process, and the documents your bank asks for, are covered step by step in the RBI LRS guide.

Putting it together

1. Nothing is withheld in the US while earnings stay in the C-Corp.
2. What you actually withdraw is withheld at 25%, and you claim the credit in India, capped at the lower of the two taxes.
3. The final liquidating distribution carries no US withholding, but India taxes it as a capital gain, so plan for the 24-month holding test.
4. TCS on the way out is recovered through your ITR; budget for it as cash-flow timing, not cost.

Disclaimer

This material is general education, not tax or legal advice, and does not create an adviser relationship. US and Indian tax law are complex, rates and thresholds change, and individual circumstances vary; consult your own qualified tax and legal advisers before acting. Investment in private real estate involves risk, including possible loss of capital and illiquidity; nothing here is an offer to sell or a solicitation to buy any security. Participation is limited to non-US persons under SEC Regulation S and verified US accredited investors under SEC Regulation D 506(c).

Last reviewed: 2026.