I am a citizen of the US filing taxes every year. My father passed away recently and I have received an inheritance from him. He was an Indian citizen and the inheritance is in India. According to the govt. of India rules, I can transmit the amount to the US by EFT after paying the reqd. taxes. My question is, would the US govt also tax me here on the principal amount or only on the interest income that I receive in the US from the inheritance. Also, what documentation would IRS require to show the inherited amount?

They will tax you ONLY on the interest earned.

There are forms that you may need to file, but I do not know them off-hand. Your bank should be able to brief you on any reporting requirements.

You may need to show the IRS the paper trail of the monetary transactions (from your father's account to your Indian bank account to your U.S. bank account) so to prove that the money was acquired legitimately, but other than that, you should be okay.

For reporting, see Form 3520, Part IV.

Agreed.

In the U.S. the receiver of gifts or inheritance does not pay any tax.
However, if total amount of gift and inheritances received from foreign individuals exceed $100,000 in 2007, then you must file Form 3520. IRS wants to be sure that the money is actually a gift or inheritance.
Another important requirement: If you are a U.S. citizen or resident and at any time you have more than $10,000 in foreign accounts, then you must file Form TD F 90-22.1 and File with the Department of Treasury by June 30, 2008.

Thanks a lot for all your help.
If anyone has any further info that I can use, it will be greatly appreciated.
Thanks!

Glad to help, though MukatA's post provided the best info.