US estate tax: A hidden risk for Indian investors with US stocks or ESOPs
Any form of US-listed stocks–either stock options or direct stocks–can create significant wealth, but they also carry the risk of US estate taxation
Rahul*, a Bangalore-based senior professional at Broadcom, has built much of his wealth through stock options from his US-listed employer. Like many Indian professionals in global tech firms, he never imagined that part of this wealth could be subject to taxes in the US, a country he has never lived in. He recently learned about US estate taxes. The news worried him because up to 40% of his ESOPs could be claimed by the US government after his death, which could reduce the amount of wealth passed on to his family.
The Hidden Tax on US stocks
Many Indian professionals working for multinational companies are in a similar situation. Even residents who invest in the US stock market can face this, as any form of US-listed stocks–either stock options or direct stocks–can create significant wealth, but they also carry the risk of US estate taxation. These stocks may be listed in the US, but their tax implications can follow the holder’s estate across borders.
To understand this, it helps to know what the estate tax is and when it applies. The US federal estate tax is levied on the transfer of property after the owner's death. An estate includes the total value of everything the deceased owned or had an interest in at the time of death. This includes real or personal property, tangible or intangible, located in India or abroad, to the extent the person had a beneficial interest.
For those who are not US citizens or Green Card holders, the estate tax applies only to assets situated in the US. This includes real estate in the US, tangible personal property located there and shares of US corporations–which is why ESOPs from companies like Broadcom, Microsoft, or Google fall under this rule. The surprising part is that even though they do not live in the US and are not subject to US income tax as residents, their US-based shares can still trigger estate tax if the assets’ value exceeds ₹60,000 at the time of death.
When it comes to paying the estate tax, the process is handled by the estate itself, which exists as a temporary taxpayer until all debts, taxes, and distributions to heirs are settled. A family member or nominee must file the required US tax form (Form 706-NA) within nine months and pay estate taxes before the shares can be transferred to heirs.
While the heirs are not directly liable for the estate tax, they are affected because the tax reduces the value of the estate they ultimately inherit. The US estate tax is progressive, starting at 18% and going up to 40% for taxable amounts above $1 million in 2025.
How to safeguard
India does not have an estate or inheritance tax treaty with the US, meaning that non-resident Indians do not receive any relief for US estate taxes. While inheritances themselves are not taxed in India, any income generated from the inherited assets, such as dividends or interest, must be reported and taxed in India.
There are planning strategies that can help reduce estate tax exposure. Some investors opt to hold US investments through foreign funds or ETFs, providing exposure to US companies without directly owning US shares. Others structure ownership of financial assets through a non-US company or an irrevocable trust, which, if properly established and funded, can protect these assets from US estate taxes.
A small relief on capital gains tax for heirs comes in the form of a step-up in basis. When shares or other qualifying assets are inherited, their cost basis is reset to the fair market value on the date of the decedent’s death. For example, say you bought US stocks for $20,000. At your death, these are worth $80,000. Your heirs will inherit these with a stepped-up basis value of $80,000, not $10,000. So, the heirs should sell the assets soon after inheriting when the value is close to the fair-market value (around $80,000 in the example); by doing so, they would pay little or no capital gains tax. This doesn’t relieve you from estate tax, but reduces the impact of double taxation by reducing capital gains tax.
It is important to note that not all assets qualify for a step-up in basis–retirement accounts like IRAs do not receive this benefit, but stocks, mutual funds, ETFs, and real estate generally do.
In short, many Indians holding US stocks or professionals holding US ESOPs don’t realize they could face estate taxes in the US. Even while living and working in India, a significant part of these shares may be taxed after death. Knowing these cross-border rules is crucial to safeguarding your family’s inheritance. With timely planning, you can protect your family’s inheritance and ensure that your lifetime of hard work benefits the people you love, and not another country’s tax system.
Neha Joshi is head of taxation, Equirus Family Office.
*Rahul's a hypothetical case
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