US Estate Tax: The Silent Risk in Direct US Investing

Direct ownership of US-situs assets exposes non-resident aliens — including Indian residents — to US federal estate tax at up to 40% on holdings above a $60,000 threshold. That threshold is not a typo: a US citizen enjoys a multi-million-dollar exemption, but a non-resident alien gets only $60,000 before the graduated rates begin.

The exposure is rarely discussed at the point of sale, yet it shapes the long-term economics of dollar investing for Indian families. A portfolio of US-listed shares or ETFs held in a personal brokerage account is, in estate-tax terms, US-situs property — and India's tax treaty with the US does not contain an estate-tax article that fixes this.

Shares of US corporations are US-situs regardless of where the certificate or brokerage sits. So are most US-domiciled ETFs. What is generally not US-situs: non-US-domiciled funds (for example Irish-domiciled UCITS ETFs) and — critically for Indian investors — units of an IFSC fund domiciled at GIFT City.

When an Indian investor holds units of a GIFT City fund that, in turn, holds US equities, the investor's asset is the IFSC fund unit — not the underlying US shares. The estate-tax situs attaches to what the investor owns, and an IFSC unit is not US-situs property. The 40% tail risk is structurally removed.

This is general education, not personalised tax advice. Estate and tax treatment depend on individual facts and the precise structure; always obtain professional advice before acting.