US ESTATE TAX: THE OVERLOOKED RISK FACING INDIANS WITH US EQUITIES AND ESOPS

Rahul*, a Bangalore based senior professional at Broadcom, built most of his wealth via stock options in US-listed firms.

- NEHA JOSHI

Like many Indians in global tech firms, he didn't think this wealth could be taxed by a country he has never lived in. A recent discovery about US estate tax changed that—he learned that up to 40% of his Esops could be claimed by the US government after his death, potentially shrinking what his family inherits.

The Hidden Tax on US stocks

Many Indians working for multinational firms are in a similar situation. Even residents who invest in the US stock market can face this, as any form of US-listed stocks—stock options or direct stocks—can create significant wealth but also carry the risk of US estate taxation. These stocks may be listed in the US, and their tax implications can follow the holder's estate across borders.

To understand this, know what the estate tax is and when it applies. The US federal estate tax is levied on transfer of property after the owner's death. An estate includes the value of everything the deceased owned or had interest in at death, including real or personal property, tangible or intangible, located in India or abroad, to the extent the person had beneficial interest.