Whalesbook
Indian professionals working for multinational companies, particularly those in the tech sector, and residents investing in the US stock market face a significant tax risk: US estate tax on their US-listed stocks and Employee Stock Options (ESOPs). Even if they have never lived in the United States, their US-based shares can be subject to US estate tax after their death if the total value of their US-situated assets exceeds a certain threshold (currently $60,000 for non-citizens/residents). This tax can be as high as 40% on amounts exceeding $1 million (in 2025) and is levied on the total value of the deceased's estate, which includes all owned property.
For non-US citizens and Green Card holders, the estate tax primarily applies to assets physically located in the US. This includes real estate, tangible personal property, and critically, shares of US corporations like those offered through ESOPs from companies such as Microsoft or Google, or direct stock investments.
The process requires the estate's executor to file a specific US tax form (Form 706-NA) within nine months of death and pay any applicable estate tax before the assets can be transferred to heirs. While heirs are not personally liable for the tax, their inheritance is reduced by the amount paid.
India and the US do not have an estate or inheritance tax treaty, meaning non-resident Indians (NRIs) receive no reciprocal tax relief. While India does not tax inheritances themselves, any income generated from inherited assets (like dividends or interest) is taxable in India.
Strategies to mitigate US estate tax exposure include holding US investments through foreign funds or ETFs, structuring ownership via a non-US company, or using an irrevocable trust. A key tax benefit for heirs is the "step-up in basis." This feature resets the cost basis of inherited assets to their fair market value on the date of the owner's death, potentially reducing capital gains tax if the assets are sold soon after inheritance. However, this step-up does not apply to all assets, such as retirement accounts like IRAs.
Understanding these cross-border tax implications is crucial for Indian professionals and investors to safeguard their family's inheritance from unexpected foreign tax liabilities.
Impact:
This news has a moderate to high impact (7/10) on a specific segment of Indian investors, particularly high-net-worth individuals working for US tech firms or those with substantial direct investments in US equities. It highlights a critical, often overlooked, cross-border tax liability that can significantly diminish inherited wealth. It necessitates proactive tax and estate planning for affected individuals to preserve their family's financial future. For the broader Indian stock market, the direct impact is limited as it concerns assets held abroad, but it raises awareness about international tax complexities for investors.
Difficult Terms Explained:
Estate Tax: A tax levied by the US government on the total value of a deceased person's assets (their estate) before it is passed on to their heirs. It applies to the transfer of property after death.
ESOPs (Employee Stock Options): Options granted by an employer to employees that give them the right to buy the company's stock at a predetermined price (strike price) within a specific period.
Non-resident Indian (NRI): An Indian citizen who resides outside India for employment, business, or other purposes.
Tax Treaty: An agreement between two countries that aims to avoid double taxation and fiscal evasion for taxpayers, often providing relief or exemptions.
Step-up in Basis: A tax provision where, upon inheritance, the cost basis of an asset is adjusted to its fair market value on the date of the owner's death. This reduces potential capital gains tax for the heir upon sale.
IRAs (Individual Retirement Accounts): Tax-advantaged investment accounts in the US designed to help individuals save for retirement.