US citizens, green card holders, and anyone who otherwise counts as a US tax resident owe US tax on worldwide income, and a gain on property sold in India is no exception -- the fact that it's already been taxed, and TDS'd, in India doesn't remove the US reporting obligation. What it does is trigger a foreign tax credit claim, which is a different thing from being let off the hook.
The two systems don't share a calendar, a currency, or even an agreed holding-period test, which is where most of the friction in this process actually comes from.
Reporting the sale: Form 8949 and Schedule D
The sale is reported on Form 8949 and flows to Schedule D, exactly as a US-situated property sale would be, with one added step: every rupee figure has to be converted to dollars at the exchange rate prevailing on the relevant transaction date -- the purchase-date rate for cost basis, the sale-date rate for proceeds, and the payment-date rate for any capitalised improvement costs. Because INR/USD moves independently of Indian property values, this can produce a dollar-denominated gain, or loss, that looks quite different from the rupee-denominated one reported to the Indian tax department, purely as a function of currency movement over the holding period.
The holding-period test is simpler than India's but not aligned with it: the US uses a flat one-year threshold for long-term treatment, while Indian law uses 24 months for immovable property. A property held for, say, 18 months can be long-term for US purposes and short-term for Indian purposes at the same time -- worth checking deliberately rather than assuming the two labels match.
If the property was inherited, US basis is generally the fair market value on the date of the decedent's death, converted to dollars at that date's rate -- not the original purchase price the family may have paid decades earlier, which is a materially different, and usually more favourable, starting point than the cost-based rules that can apply under Indian law.
Claiming credit for the Indian tax: Form 1116
The Indian tax already paid -- TDS withheld under Section 393(2), reconciled against the final liability once the Indian return is filed -- is generally claimed as a foreign tax credit on Form 1116, under the passive category income basket, since the property gain isn't tied to an active US trade or business. The credit is capped per category by the US tax attributable to that category of foreign-source income; unused credit can be carried back one year or forward ten.
One sequencing issue trips people up: if the Indian TDS withheld exceeds the eventual Indian tax liability and a refund is later obtained, only the amount India actually retains counts as creditable foreign tax. A credit claimed on the full TDS amount, followed by an Indian refund arriving after the US return is filed, generally requires an amended US return to reflect the lower final foreign-tax figure.
Where the DTAA fits -- and where it doesn't help
Article 13 of the India-US tax treaty assigns primary taxing rights on gains from immovable property to the country where the property sits -- India, in this case. That doesn't mean the US steps aside; as the residence country, the US still taxes the gain and relieves the resulting double taxation through the credit mechanism described above, not through an exemption. Because Indian long-term capital gains tax (12.5% plus surcharge and cess, post the indexation changes) usually runs lower than the combined US federal long-term rate, up to 20%, plus the 3.8% Net Investment Income Tax, most NRIs and OCIs end up owing some incremental US tax even after the credit is applied.
The NIIT specifically deserves its own line item: foreign tax credits generally cannot offset it, because it sits in a different chapter of the US tax code, Chapter 2A, from the regular income tax the credit is designed to offset, Chapter 1. A few recent US court decisions have allowed treaty-based credits against NIIT under other countries' treaties, but that theory hasn't been established for the India treaty, so it's safer to budget for the 3.8% as a real, largely uncreditable cost rather than assume it will wash out.
Practical sequencing
Settle the Indian side first where possible -- pursue a lower or nil-TDS certificate before the sale closes if the numbers justify it, keep every challan and Form 16A, and use one consistent, documented exchange-rate source across both the Indian and US filings. Coordinate timing so the Indian return, and any refund, lands before the US filing deadline if at all feasible, since the US credit calculation depends on the final Indian number, not the initial TDS. And remember that sale proceeds sitting in an NRO account afterward have their own separate FBAR and FATCA reporting triggers, independent of the capital-gains reporting covered here.