Estate Tax for Indian Investors in US Stocks: What It Is and How to Reduce Your Risk

Estate Taxes kicks in once the investor dies and the portfolio value needs to move to their legal heirs/family members. There is Zero Estate Tax for Indians investing in US stocks with portfolio value less than $60000. However for portfolio values greater than $60,000, the investor’s legal heirs could be subject to a 40% deduction. 

This chapter explains what the US estate tax is and what practical steps you can take to reduce your family's exposure.

What is Estate Tax?

The US estate tax is a federal tax levied on the value of a person's assets at the time of their death, before those assets are transferred to their heirs. It is sometimes called the 'death tax.'

For US citizens and permanent residents, the estate tax only kicks in on estates worth more than approximately $13 million. 

For non-US residents, including Indian investors the rules are entirely different.

Indian residents investing in US stocks are classified by the IRS as Non-Resident Aliens (NRAs). The estate tax exemption for NRAs is $60,000, compared to approximately $13 million for US citizens and residents.

Any US assets you hold above $60,000 at the time of death are potentially subject to US estate tax at progressive rates up to 40%.

However, 98% of Indian investors hold value less than $60,000, therefore this tax in reality will not trigger for them. 

Which Assets Count as US Assets for Estate Tax Purposes?

The US estate tax applies to what the IRS calls 'US situs property' - assets that are legally located in the United States. For Indian investors, this includes:

• US-listed stocks - Apple, Nvidia, Microsoft, Tesla, and any other company listed on the NYSE or NASDAQ
• US-listed ETFs - including S&P 500 ETFs (VOO, SPY), NASDAQ-100 ETFs (QQQ), and sector ETFs listed on US exchanges
• US real estate
• Cash held in a US brokerage account
• Direct private investment in US companies (Example : Investing in a pre-ipo company like spaceX or investing like an angel investor in a US startup)

India and the US Have No Estate Tax Treaty

India and the United States do have a Double Taxation Avoidance Agreement (DTAA) - which is why your capital gains on US stocks are only taxed in India and attract Zero taxation in the US. Dividend withholding is 25% rather than 30% (covered in the W-8BEN chapter). This DTAA covers income taxes only. It does not cover estate tax.

India and the US have no bilateral estate tax treaty. This means Indian investors receive none of the estate tax protections or credits that the US extends to residents of countries with whom it has estate tax treaties - such as the United Kingdom, France, Germany, Japan, and Australia.

Key Mitigation Strategies in Detail to reduce Estate Tax exposure

While majority Indian investors (their legal heirs) in US stocks do not get exposed to this Estate taxation because of the threshold of $60000, however for the small minority there could be practical strategies to mitigate this risk.  

Family Accounts: The Most Accessible Strategy for Direct US Stock Investors

If you want to continue investing directly in US stocks with an investment greater than $60000 spreading holdings across family accounts is the most accessible mitigation strategy available on INDmoney.

The logic is straightforward: the $60,000 estate tax exemption applies per individual. A husband and wife each get $60,000. Add two adult children and the family's combined tax-free threshold reaches $2,40,000 - with no change to what is being invested in, and no structural complexity.

If your portfolio is approaching $60,000 - open family accounts now

The cleanest approach is to act before crossing the threshold. As your own US portfolio approaches $60,000, open US stocks accounts for your spouse, parents, or adult children on INDmoney and begin directing new investments into their accounts.

Each family member needs their own KYC, PAN, and bank account for LRS remittance - a process that takes under 10 minutes on INDmoney. Once set up, you can view and manage all family portfolios in a single consolidated view on the INDmoney app, so the day-to-day management overhead is minimal.

An added benefit: each family member also has their own independent annual LRS limit of $2,50,000. A family of four therefore has a combined annual investment capacity of $10,00,000 - far above what most retail investors need - with no individual breaching the LRS ceiling.

If your portfolio has already crossed $60,000 - you can still split it

If you have already built a US portfolio above $60,000 in your own name, the option to gift a portion of those holdings to family members remains open. Here is how the applicable tax rules treat such a transfer:

• US gift tax: Non-resident aliens (NRAs) are specifically exempt from US gift tax when gifting intangible property - which includes US-listed stocks and ETFs. Transferring Apple or VOO shares to your spouse or child does not trigger US gift tax.
• Indian income tax for the recipient: Under Section 56(2)(x) of the Income Tax Act, gifts received from specified relatives - spouse, children, parents, siblings and their spouses - are fully exempt from income tax regardless of value.
• Cost basis for the recipient: The recipient inherits your original purchase price and holding period. This affects how their future capital gains are calculated when they eventually sell.

After the transfer, both portfolios remain visible and manageable within INDmoney's family account view.

Each transfer is a permanent gift - the recipient legally owns those shares. Do not transfer assets you may need to access yourself. Consult a tax adviser before executing to confirm cost-basis treatment and any other considerations specific to your situation.

Power of Attorney: Operational Continuity Alongside Family Accounts

A Power of Attorney (PoA) allows a trusted family member to operate your US stocks account on your behalf - and vice versa. Granting a PoA to your spouse or adult child does not reduce estate tax exposure, but it solves a separate and equally important problem: access.

Without a PoA, if something happens to you, your family faces a probate process - a legal procedure to establish the right to access and transfer your assets - that can take months. During this period, your US portfolio is frozen. Markets do not pause for probate.

A PoA ensures that a named family member can immediately manage and liquidate your US holdings if needed, without waiting for estate proceedings to complete. Combined with the family account splitting strategy above, a PoA provides both the tax mitigation and the operational continuity that a well-planned US stock portfolio needs.

Irish-Domiciled ETFs: The Most Effective Route for Index Investors

If you want to continue investing in index funds tracking the S&P 500 or global markets, but want to eliminate US estate tax risk, Irish-domiciled ETFs are the most structurally sound solution available.

Ireland has an estate tax treaty with the United States. Under that treaty, ETFs legally domiciled in Ireland are not classified as US situs assets for non-resident aliens. This means that if an Indian investor holds units of an Irish-domiciled S&P 500 ETF, those units are not subject to US estate tax - even though the ETF itself holds US stocks internally.

Examples of Irish-domiciled ETFs that track major US and global indices:

• CSPX - iShares Core S&P 500 UCITS ETF, listed on the London Stock Exchange
• VUSA - Vanguard S&P 500 UCITS ETF, listed on the London Stock Exchange
• IWDA - iShares MSCI World UCITS ETF, listed on the London Stock Exchange

These ETFs are structurally different from their US-listed equivalents (VOO, SPY, VTI) but track the same underlying indices with similar - though not identical - expense ratios and performance.