An Indian investor can buy US stocks for years without paying US tax on most normal share-sale gains. But there is another tax that is easy to miss: US estate tax. It can become relevant if a person who is neither a US citizen nor US-domiciled dies while owning certain US-based assets, including shares of US companies and US-domiciled ETFs. The number most investors hear is $60,000. But this does not mean everything above $60,000 is automatically taxed at 40%.

Quick Answer

For an Indian investor who is neither a US citizen nor US-domiciled, shares of US corporations and US-domiciled ETFs can generally be treated as US-situated assets. If applicable US-situated assets exceed $60,000 at death, the estate may generally need to file IRS Form 706-NA. Estate tax is calculated using progressive rates, which eventually reach 40% for larger taxable estates. The $60,000 figure is therefore an important estate-planning threshold, not a simple point after which all additional wealth is taxed at 40%.

What Is US Estate Tax?
Why Does It Affect Indian Investors?
Which Investments Are US-Situated Assets?
What Does the $60,000 Threshold Mean?
How Is US Estate Tax Calculated?
Practical Example
Are US-Domiciled ETFs Affected?
What About Irish-Domiciled ETFs?
Does the India-US DTAA Help?
How Can Investors Manage the Risk?
Common Mistakes to Avoid
Conclusion
FAQs

What Is US Estate Tax?

US estate tax is a federal tax on the transfer of certain property after a person’s death. For someone who is neither a US citizen nor considered US-domiciled for estate-tax purposes, the US generally focuses on assets legally situated in the United States. These are called US-situs or US-situated assets.

The IRS says US-situated property can include US real estate, certain tangible property and shares of corporations organised under US law. One technical point is worth knowing: estate-tax residency is based on domicile, not simply where you file your income-tax return. The IRS defines domicile by looking at where a person lives and whether they intend to remain there.

For most India-based retail investors who have never established US domicile, the nonresident noncitizen framework is the relevant starting point.

Why Does US Estate Tax Affect Indian Investors?

Suppose you live in India and directly own:

Apple shares
Microsoft shares
Nvidia shares
Amazon shares

Those companies are organised under US law. The IRS says shares of a corporation organised in or under US law are generally US-situated property, even if the investor held the shares or certificates outside the United States. So the location of your broker does not by itself remove the estate-tax issue. What matters is the asset you legally own.

Which Investments Can Be US-Situated Assets?

For an Indian investor under the nonresident noncitizen rules, relevant assets can include:

Direct shares of US corporations
Shares of US-domiciled ETFs
US real estate
Certain other US-based property

Not every investment denominated in US dollars is automatically a US-situs asset.

Legal ownership and the issuer’s domicile matter more than the currency in which the investment trades.

What Does the $60,000 Threshold Mean?

This is the most misunderstood part of US estate tax. The IRS says the executor of a nonresident noncitizen estate generally must file Form 706-NA if the value of the person’s US-situated assets at death, together with certain adjusted taxable gifts, exceeds $60,000.

The standard maximum unified credit is generally $13,000. Under the current rate schedule, that equals the tentative estate tax on $60,000.

So $60,000 is best understood as:

A key Form 706-NA filing threshold
The amount effectively covered by the ordinary $13,000 credit in a simple case

It is not a rule saying every dollar above $60,000 is taxed at 40%.

How Is US Estate Tax Calculated?

US estate tax uses progressive rates. The current unified rate schedule starts at 18% and gradually rises to a top marginal rate of 40% once the taxable amount exceeds $1 million.

A simplified calculation looks like this:

Work out the fair market value of US-situated assets at death.
Subtract permitted deductions.
Calculate tentative estate tax using the progressive rate table.
Apply the available unified credit.
Arrive at the federal estate tax payable.

The IRS uses the fair market value at death, not the amount originally invested.

Practical Example

Suppose an Indian investor dies holding $100,000 of US company shares.

For simplicity, assume there are:

No relevant prior taxable gifts
No deductible expenses
No treaty relief
No other adjustments

Under the current rate schedule, tentative estate tax on $100,000 is: $23,800

The ordinary maximum unified credit is generally: $13,000

So the simplified federal estate tax would be:

$23,800 − $13,000 = $10,800

That is about 10.8% of the $100,000 portfolio in this simplified example.

It is not 40%. The 40% marginal rate is reached only at much larger taxable amounts.

Are US-Domiciled ETFs Affected?

Generally, yes. Suppose you own shares of an ETF organised in the United States. Even if that ETF holds hundreds of companies, you legally own shares of the US-organised fund. Those fund shares are generally treated as US-situated property for a nonresident noncitizen investor.

This means estate-tax exposure can arise from both:

Individual US stocks
US-domiciled ETFs

The fact that an ETF is diversified does not by itself change its domicile.

What About Irish-Domiciled ETFs?

This is where fund structure matters. Suppose an ETF is organised as an Irish corporate fund but invests entirely in US stocks. The ETF owns the US shares. You own shares of the Irish fund. Shares of a qualifying foreign corporation are generally analysed differently from shares of a US corporation and may therefore fall outside direct US estate-tax situs for the investor.

This is one reason some international investors consider Irish-domiciled UCITS ETFs for US-market exposure. However, do not assume every non-US ETF receives identical treatment. Legal structure, domicile, dividend withholding, trading access, fees and Indian taxation all need to be checked.

Does the India-US DTAA Protect Indian Investors?

Not for US estate tax in the same way it deals with income tax.

India and the US have an income-tax treaty, but India does not appear on the IRS list of countries with a US estate or gift tax treaty.

So investors should not assume that the India-US DTAA automatically gives the same estate-tax relief available under treaties the US has with countries such as the UK, France, Germany or Japan.

How Can Investors Manage US Estate-Tax Risk?

There is no single solution that suits everyone.

1. Track Your US-Situs Exposure:

Do not look only at the value of your total international portfolio.

Identify how much is directly held in:

US stocks
US-domiciled ETFs
Other US-situated assets

2. Check ETF Domicile:

Two ETFs can track the same S&P 500 index but have different legal domiciles. That can affect estate-tax treatment.

3. Review the Issue Before the Portfolio Becomes Large:

The $60,000 level can be reached surprisingly quickly when markets rise and investments compound. Estate tax is based on market value at death, not your original purchase cost.

4. Keep Succession Documents Updated:

A nominee, beneficiary instruction or will does not eliminate estate tax, but good documentation can make succession easier for family members.

5. Get Advice for Larger Holdings:

Once your direct US portfolio becomes meaningful, cross-border estate advice can be useful. Estate-tax planning can depend on citizenship, domicile, family structure, ownership structure and the types of assets held.

Common Mistakes to Avoid

Thinking Everything Above $60,000 Is Taxed at 40%: US estate tax uses progressive rates. Forty percent is the top marginal rate, not the automatic rate immediately above $60,000.
Assuming an Indian Broker Removes the Risk: Broker location does not change the legal situs of US corporation shares.
Ignoring US-Domiciled ETFs: Estate-tax exposure is not limited to individual US company shares.
Assuming Every Foreign ETF Is Automatically Safe: The fund’s legal domicile and structure need to be checked.
Confusing Estate Tax With Capital Gains Tax: Capital gains tax applies when an investment is sold for a profit. Estate tax concerns the transfer of applicable assets after death.
Assuming the India-US DTAA Covers Estate Tax: India does not currently appear on the IRS list of estate and gift tax treaty countries.

Conclusion

US estate tax is a real consideration for Indian investors holding US stocks, but the risk is often explained too dramatically. Direct shares of US corporations and US-domiciled ETFs can generally count as US-situated assets for someone who is neither a US citizen nor US-domiciled. If applicable US-situated assets exceed $60,000 at death, Form 706-NA may generally need to be filed. But that does not mean every dollar above $60,000 is taxed at 40%. The tax uses progressive rates, deductions and credits. As your direct US portfolio grows, pay attention not only to returns and capital-gains tax but also to asset domicile, portfolio value and succession planning.