| Quick Answer: Yes. If you’re an Indian employee (a US nonresident alien) holding RSUs, ESOPs, or ESPP shares in a US-incorporated company, those shares are US-situs assets. If their value at death exceeds $60,000, your heirs may owe US estate tax up to 40%, even though you never lived or paid income tax in the US. |
Big tech companies in the US often include stock compensation or RSUs as part of their employee pay packages. In some cases, it can make up a significant portion of the employee’s total compensation.
If you’re an Indian citizen working for a US-incorporated company and your compensation package includes RSUs or ESOPs, the one number that becomes important here is $60,000. Once your value of US shares crosses this threshold, US estate tax could become relevant, even if you don’t live and work in the US.
So, what is US estate tax, how does it impact your financial wealth, and how to reduce the impact of US estate tax on your US investments? This article covers all. Let’s start.
What is the US Estate Tax Rule?
US estate tax is similar to an inheritance tax, levied on the assets a person owns at the time of death, before the assets are passed on to their heirs. In simple terms, if you die holding certain US assets, the US government may take a portion of their value as estate tax before it is transferred to heirs.
If you are not a US citizen and not domiciled in the US, the US treats you as a nonresident alien (NRA). In such a case, the US taxes only US-situs assets, which can include shares of US companies and ETFs.
The key number to watch here is $60,000. If the value of US-situs assets crosses this threshold at the time of death, the heir may have to pay US estate tax. The tax rate is progressive and can go up to 40% of the estate value.
For Indian employees, this means RSUs and ESOPs can create an estate tax exposure even if they don’t live in the US and pay taxes in India.
Heirs or the estate’s representative usually report and pay this tax by filing Form 706-NA with the IRS. The form and payment are due within nine months after the date of death. You can ask for a six-month extension if needed. If you miss the deadline, you may have to pay penalties and interest in addition to the tax owed.
What is the US Estate Tax Rate?
The US estate tax rate is progressive, meaning the tax rate increases as the taxable estate becomes larger. The rates start at 18% and go up to 40%.
US Estate Tax Rate Schedule (Unified Rate Table)
| Taxable estate over ($) | But not over ($) | Tax on the lower amount ($) | Plus % of excess over lower amount |
| $0 | $10,000 | $0 | 18% |
| $10,000 | $20,000 | $1,800 | 20% |
| $20,000 | $40,000 | $3,800 | 22% |
| $40,000 | $60,000 | $8,200 | 24% |
| $60,000 | $80,000 | $13,000 | 26% |
| $80,000 | $100,000 | $18,200 | 28% |
| $100,000 | $150,000 | $23,800 | 30% |
| $150,000 | $250,000 | $38,800 | 32% |
| $250,000 | $500,000 | $70,800 | 34% |
| $500,000 | $750,000 | $155,800 | 37% |
| $750,000 | $1,000,000 | $248,300 | 39% |
| $1,000,000 | No limit | $345,800 | 40% |
Source: IRC Section 2001(c).
A non-US resident individual receives a unified tax credit of up to $13,000, which effectively shields the first $60,000 of US-situs assets from US estate taxes.
Example of Calculation of US Estate Tax
Suppose Jacob’s family inherits $120,000 worth of US stocks after his death. Jacob was an Indian resident and a non-US citizen, so the US estate tax rules for a nonresident noncitizen apply. The US estate tax calculation would work as follows:
| Step | Calculation | Amount |
| 1. US-situs taxable estate | US stocks held at death | $1,20,000 |
| 2. Bracket floor (lower amount) | Bracket the estate falls in | $1,00,000 |
| 3. Base tax on lower amount | Tax up to the bracket floor | $23,800 |
| 4. Marginal rate | Rate on the excess | 30% |
| 5. Excess over bracket floor | Estate − bracket floor | $20,000 |
| 6. Tax on the excess | Marginal rate × excess | $6,000 |
| 7. Tentative tax | Base tax + tax on excess | $29,800 |
| 8. Less: NRA credit | Tax on the first $60,000 | ($13,000) |
| 9. US estate tax payable | Tentative tax − credit | $16,800 |
| 10. Effective rate | Tax payable ÷ estate | 14.00% |
Jacob’s family would have to pay $16,800 in US estate tax before the shares can be transferred to their name and sold.
If you want to check your potential exposure to US estate tax, you can use the US Estate Tax Calculator by Vested Finance. It gives you a quick estimate of your potential estate tax liability based on your US holdings, helping you understand your exposure before discussing it with a tax advisor.
What are US-situs Assets?
US-situs assets means the assets that are located in the US for tax purposes. This includes shares of US-incorporated companies, US real estate, tangible property located in the US, and other US-domiciled securities. But a foreign-incorporated company with shares listed in the US markets is not classified as a US-situs asset. US ETFs are also considered US-situs assets.
For Indian citizens, the classification of US-situs assets is limited to US-incorporated assets. On the other hand, for US citizens, assets outside the US are also taken into consideration while computing estate tax.
Your NRE/NRO/FCNR bank accounts, Indian mutual funds, and Indian real estate are not subject to US situs and therefore fall entirely outside the scope of this rule. The exposure in question refers only to assets associated with US-incorporated companies.
What Happens to RSUs, ESOPs, and ESPPs?
For employees in US-incorporated companies, stock compensation becomes a major source of US estate tax exposure. This is how US estate tax impacts RSUs, ESOPs, and ESPPs:
Vested RSUs: Once RSUs vest and the shares are delivered to you, you own the shares. They are generally treated as US-situs assets. Unvested RSUs have no exposure to US estate taxes.
Stock options or ESOPs: If you have exercised the options and own the US shares, those shares are subject to US estate tax.
ESPP shares: Once you purchase the shares through an employee stock purchase plan, they are treated like any other company shares. If the company is incorporated in the US, their shares are classified as US-situs assets.
Note – Keep in mind that estate tax is different from the yearly need to report your US shares as foreign assets in Schedule FA of your Indian tax return while you are alive. Schedule FA must be filed every year, but US estate tax only applies once, after death.
How to Reduce the Impact of US Estate Tax?
One way to reduce US estate tax exposure is to sell your US shares and move the money into investments that are not treated as US-situs assets.
For example, instead of directly holding US stocks, an Indian investor can consider Global UCITS funds domiciled in jurisdictions such as Ireland or Luxembourg. These funds can provide exposure to the US and other global markets without the need to directly own US domiciled shares. This allows investors to keep geographical diversification and world market exposure, while possibly reducing their exposure to US estate tax.
Investing in Global UCITS Funds Through Vested Finance
Vested Finance allows Indian investors to invest in Global UCITS funds. The platform offers funds across different themes and markets, including technology, artificial intelligence, and emerging markets.
For an investor looking to reduce direct exposure to US-situs stocks while retaining global equity exposure, Global UCITS funds can therefore be one route to consider.
What Should Indian Employees with US Stock Compensation Do?
If you have US stock holdings whose value is close to, or has already gone over, the $60,000 threshold, it’s worth considering an alternative global investment structure.
Check your RSUs vesting schedule, ESPPs, stock options, and other US holdings to understand the potential estate tax exposure. Consider whether a different investment structure can provide global diversification with lower US estate-tax exposure.
US Estate Tax on US Stocks: Plan Before the Holding Gets Large
For Indian employees, RSUs and ESOPs can create substantial wealth over time. But as holdings become large, they also bring in tax complexities that you cannot overlook. If the value of your US stock holdings crosses $60,000, US estate tax becomes an important consideration, even if you’re an Indian citizen.
Therefore, diversifying your global investments into non-US investment structures can help you reduce the potential impact of US estate taxes. Global UCITS funds can be one of your considerations.
Estate planning is easier when it is done while you have control of your investments, rather than leaving your family to deal with taxes, paperwork, and frozen shares later.
Frequently Asked Questions
What is the US estate tax exemption for Indian residents?
For non-US citizens and non-US residents, the US estate tax exemption is effectively $60,000 for US-situs assets.
Are RSUs subject to US estate tax?
Yes. Once RSUs vest and the shares are delivered, shares of a US company are generally treated as US-situs assets and are subject to US estate tax.
How can Indians reduce US estate tax on US stocks?
One option is to reduce direct holdings in US stocks and consider investments such as eligible non-US-domiciled funds. Global UCITS funds may be one option.
Are Global UCITS funds subject to US estate tax?
No. UCITS funds domiciled outside the US, such as in Ireland or Luxembourg, are generally structured differently from US-domiciled funds. Their estate-tax treatment depends on the specific fund and its underlying assets.
What form is used to file US estate tax, and what is the deadline?
The estate’s representative usually files Form 706-NA with the IRS to report and pay US estate tax for a nonresident alien. The form is due within 9 months after the date of death, but you can request a 6-month extension.
Does holding US shares through an Indian or foreign broker avoid US estate tax?
No. Whether shares are subject to US estate tax depends on where the company is incorporated, not where your brokerage account is located. Owning shares of a US company through an Indian platform does not protect them from US estate tax.
