“Indians getting taxed 40% on US stocks” is a common narrative being talked about in social circles. It is somewhat misleading. The 40% tax pertains to the US Estate tax, which only applies upon the investor’s death, rather than during the buying, holding, or selling of stocks while alive.
Further, it gets into play, on a tiered basis, only if the deceased’s investor wealth exceeds a certain exempted limit.
The culprit: US Estate Tax
The culprit is the US Estate Tax. Non-US citizens may be subject to US estate taxation on wealth from certain deceased non-residents, concerning US-situated assets like US stocks, listed ETFs, ADRs, and real estate property.
In simple terms, this means that Indian investors holding US stocks directly could have this tax applied to their estate upon death, even though they were never US citizens or residents.
For estate tax purposes, a decedent is a nonresident, not a citizen of the United States, if the decedent is neither domiciled in nor a citizen of the United States at the time of death. Whether a decedent was a nonresident of the United States for US estate tax purposes is determined based on the decedent’s domicile at the time of death.
When does the tax apply
An executor for a nonresident, not a citizen of the US, must file an estate tax return if the fair market value at death of the decedent’s US-situated assets exceeds $60,000.
This $60,000 figure is important; it’s a much lower threshold than what US citizens get, and it catches many retail investors off guard.
To value the assets held at the date of death, the fair market value is used, not necessarily what was paid for them or what their values were when they were acquired.
If the date of death value of the decedent’s US-situated assets, together with the gift tax specific exemption and the amount of the adjusted taxable gifts, exceeds the filing threshold of $60,000, the executor must file the relevant tax forms for the decedent’s estate, within 9 months after the date of death.
How much can you actually lose?
Upon the death of a foreign person not domiciled in the US, the US imposes an estate tax of up to 40% of the value of “US -situated assets” to the extent the total value of such assets exceeds US$60,000. This tax is levied on the aggregate value of the decedent’s “US -situated assets,” to be paid by the surviving family member through an executor.
Here’s what that looks like with real numbers. Suppose an investor possesses a $100,000 portfolio of US stocks. Upon death, the first $60,000 is exempt from estate tax, while the remaining $40,000 may incur tax liability.
The tax rate is tier-based. For example, between $0 and $10,000 (after exempting $60,000), the rate is 18% and keeps rising by 2%; for over $1,000,000 of excess amount, the tax rate is 40%.
So the more valuable the US portfolio, the closer the tax bill creeps toward that 40% ceiling.
The Estate tax is also applicable for US citizens and residents but has a much higher exemption limit of $15 million as of 2026.
That’s a massive gap, $60,000 versus $15 million, and it exists purely because of citizenship and domicile status, not the size of the investment.
Estate tax treaties between the US and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the US and subject to US estate taxation. Such a treaty stands with 15 countries, but does not include India.
The workaround
If you are buying US stocks or ETFs on international brokerage platforms, the Estate tax applies, but it will not be applicable if you diversify through international mutual funds or use the GIFT City route.
UCITS-domiciled funds, primarily located in Ireland or Luxembourg, allow international investors to indirectly invest in US securities. Investors own units of the fund rather than the US stocks, which helps them avoid exposure to US estate tax.
The bigger picture
International investing is steadily gaining traction among Indian investors. In the first five months of 2026, Indians have already invested $1,487 million in overseas markets, as part of their global diversification strategy. The total dollars under the RBI LRS sent abroad for the purpose of investments in equities and debt amounted to $2,652 million for the fiscal year 2025-26.
As more Indians look to invest beyond domestic markets, the US Estate Tax is quietly becoming one of the factors shaping how, and where, that money is being routed.
Disclaimer: This article is for informational and educational purposes only and should not be construed as tax, legal, financial, or investment advice. US Estate Tax rules for nonresident investors are complex and depend on individual circumstances, including domicile status, treaty applicability, and the nature of assets held. Readers are strongly advised to consult a qualified tax advisor or cross-border tax specialist familiar with both US and Indian tax law before making investment decisions or estate planning choices. Financial Express is not responsible for any decisions made based on this information.