The US estate tax nobody told you about when you bought US stocks

If you're an Indian resident holding US stocks — through Interactive Brokers, Vested, INDmoney, or an employer RSU plan — there is a US tax that applies to your holdings when you die, and it starts at $60,000. Not ₹60,000. Not $6 million. Sixty thousand dollars, roughly ₹50 lakh at current rates.

Above that, the US can tax the excess at rates climbing to 40%, and India is one of the countries with no treaty protection against it.

This has nothing to do with income tax, nothing to do with your ITR, and nothing to do with the LRS limit. Most Indian investors holding US stocks have never heard of it, because no broker is required to warn you at account opening.

Why a US tax applies to an Indian resident at all

The US taxes the estates of non-residents on US-situs assets — property the US considers located within its borders. For a non-resident non-citizen (which every Indian resident investor is), the test is about the asset, not about you and not about where your broker is.

Shares of a US corporation are US-situs assets regardless of where they are held. Your Apple shares are US-situs whether they sit in an IBKR account, a feeder structure through an Indian platform, or a certificate in a drawer in Pune. Moving the account doesn't move the asset.

That's the part that catches people out. The instinct is that if the account is with an Indian platform, this is an Indian matter. It isn't.

The number that matters: $60,000

A US citizen's estate can pass roughly $15 million before the estate tax bites. A non-resident gets a unified credit of $13,000, which shelters about $60,000 of US-situs assets. Same tax, same rates, exemption smaller by a factor of about 250.

Rates above the threshold are graduated from 18% up to 40%, with the top rate reached above $1 million of taxable estate. So a portfolio of $200,000 in US stocks has roughly $140,000 of exposed value, and the estate tax on that runs into the tens of thousands of dollars.

India's specific problem: no estate tax treaty

The US has estate tax treaties with about sixteen countries — the UK, Germany, France, Japan, the Netherlands and others. Residents of those countries get materially better treatment, often a proportionate share of the full US exemption instead of the flat $60,000.

India is not one of them.

The India–US DTAA that you rely on for dividend withholding and foreign tax credit is an income tax treaty. It does nothing here. Estate taxation runs on a separate treaty network, and India never joined it.

There's also no relief from the Indian side, because India abolished estate duty in 1985. So there's no Indian estate tax to credit the US tax against — it's simply a cost, not a double-tax situation with a mechanism to resolve it.

What's exposed and what isn't

This is where planning actually happens, because the situs rules are asset-specific and somewhat counterintuitive:

The fourth row is the one people act on. An Irish-domiciled UCITS ETF that holds the entire S&P 500 gives you the same economic exposure, but the asset you own is an Irish fund, not a US security — so it falls outside US-situs entirely.

This is not a free lunch. Irish-domiciled ETFs suffer 15% US withholding at the fund level, and that tax is borne by the fund, not by you — meaning you cannot claim it as foreign tax credit on your Indian return, unlike the withholding on direct US dividends. There are also open questions about how a foreign accumulating ETF is characterised for Indian capital gains purposes. It's a genuine trade-off, not an obvious upgrade.

What actually happens in practice

The legal position and the practical experience are different things, and it's worth being honest about both.

Formally: the estate must file Form 706-NA within nine months of death. Before a US broker releases assets to heirs, it will typically require an IRS transfer certificate (Form 5173), which is issued only after the estate's US tax position is settled. That process routinely takes many months.

Practically: the friction point most families hit is not an IRS assessment — it's the broker freezing the account and asking for paperwork the family didn't know existed, at the worst possible moment. Enforcement against small estates is inconsistent, and plenty of assets have moved without anyone filing anything. But "inconsistent enforcement" is a bad thing to build a plan around, and it does nothing about the account being locked while your family is grieving.

What people actually do about it

None of these are recommendations — they're the options that exist, each with real costs:

1. Stay under $60,000 in US-situs assets. Fine for small portfolios, useless for anyone accumulating RSUs.
2. Hold Irish-domiciled ETFs instead of US ETFs and individual US stocks — with the foreign-tax-credit trade-off described above.
3. Term life insurance sized to the liability, so the estate has liquidity to pay it without a forced sale.
4. Corporate or trust structures — genuinely effective, genuinely expensive, and easy to get wrong in ways that create Indian tax problems.
5. Accept it and document it, so at least your family knows the account exists, knows this tax exists, and has the paperwork.

For most salaried RSU holders, the honest answer is that options 3 and 5 are proportionate and the rest are not.

How this connects to Schedule FA

There's no direct link — Schedule FA is annual disclosure of assets you hold while alive; this is a tax on transfer at death. But they share a root cause worth noticing: the same holdings that make Schedule FA mandatory are the ones that create US estate exposure. If you're filling Table A3 every year with US equities, that same table is a rough inventory of your US-situs estate.

If nothing else, the Schedule FA workings you already produce each year are the document your family would need.