Estate, Gift & Exit Taxes for US NRIs: A Complete Guide to U.S. Tax Planning
Written by
Kashish Manjani
- Blog
- Financial Planning
Date
24 September 2026
YouTube
For most US NRIs, income tax planning gets all the attention. FBAR filings, FATCA disclosures, foreign tax credits — these are the compliance obligations that show up every April. But the taxes that tend to do the most damage — and that catch NRI families most off guard — are the ones that apply at life’s major transition points: inheritance, large gifts, and the decision to leave the US permanently.
Estate tax, gift tax, and exit tax operate very differently from income tax, and the rules for NRIs and non-resident aliens are often more complex — and more punishing — than those for US citizens. This guide walks through each one, explains who they apply to, and outlines what US NRIs can do to plan around them before a triggering event occurs.
This blog is for educational purposes only and does not constitute legal or tax advice. Tax laws and thresholds change regularly — please consult a qualified CPA, tax attorney, or SEBI-registered advisor familiar with US-India cross-border taxation before making decisions.
What Are Estate, Gift and Exit Taxes?
These three taxes are distinct in when they apply, but they share one common thread: they are all transfer taxes, assessed on the movement of wealth rather than on income earned.
Estate tax is levied on the transfer of assets from a deceased person’s estate to their heirs. It is assessed on the value of the estate at the time of death, before distribution.
Gift tax applies to the transfer of property from one person to another while both are alive, without receiving full market value in return. It exists primarily to prevent individuals from transferring their entire estate as gifts before death to avoid estate tax.
Exit tax (technically called the expatriation tax) applies when a US citizen renounces their citizenship or when a long-term permanent resident formally gives up their Green Card. It is essentially a deemed disposal tax — the IRS treats the person as having sold all their worldwide assets on the day before expatriation.
All three can apply to NRIs in different ways depending on their immigration status, domicile, and the nature of assets held in the US.
Estate Tax for US NRIs
Estate tax for US NRIs is one of the most consequential and least understood tax obligations in cross-border financial planning. The rules differ significantly based on whether the NRI is a US citizen, a Green Card holder, or a non-resident alien.
Who is subject to the US estate tax? US citizens and domiciliaries (those whose permanent home is in the US) are subject to estate tax on their worldwide assets. Non-resident aliens (NRAs) — which include many US NRIs who are neither citizens nor domiciliaries — are subject to estate tax only on US-situated assets.
What counts as US-situated assets? This is where many NRI families are blindsided:
- US stocks and securities: Shares in US corporations are treated as US-situated assets even if held in a brokerage account outside the US. This includes ETFs, mutual funds, and individual equities listed on US exchanges.
- US real estate: Any property physically located in the US — a primary home, a rental property, a vacation home — is a US-situated asset regardless of how it is titled.
- US business interests: Ownership stakes in US-based partnerships, LLCs, or closely held corporations generally qualify as US-situated assets.
- Tangible personal property: Physical assets located in the US at the time of death — artwork, vehicles, jewellery — may also be included.
Estate tax thresholds: For US citizens and domiciliaries, the federal estate tax exemption is currently over $13 million per individual (subject to change; scheduled to be significantly reduced after 2025 without Congressional action). For non-resident aliens, the exemption is just $60,000 for US-situated assets — a figure that hasn’t been updated in decades and that makes even modest US real estate or stock portfolios potentially taxable.
Reporting: Form 706 applies to US citizens and domiciliaries. Form 706-NA is used for non-resident alien decedents with US-situated assets. The executor or legal representative is responsible for filing, and the deadline is typically nine months from the date of death.
India-US considerations: The US and India have a limited bilateral estate tax framework, but NRIs should not assume it provides broad protection. An Indian-resident NRI whose estate includes significant US stocks or real estate may face US estate tax on those assets even if the bulk of the estate sits in India. Professional coordination between a US tax attorney and an Indian estate advisor is essential for estates with cross-border assets.
The key takeaway: if a person’s title includes “advisor,” “planner,” or “wealth manager” but they aren’t SEBI-registered as an RIA, they are technically not legally permitted to give personalised investment advice in India — SEBI explicitly restricts the use of terms like “independent financial adviser” to registered RIAs.
Protect and structure your wealth with thoughtful will and estate planning.
Gift Tax for US NRIs
The US gift tax applies to the donor — the person giving the gift — not the recipient. For US NRIs, whether and how the gift tax applies depends on their residency status for gift tax purposes, which follows different rules than income tax residency.
The income-tax vs gift-tax residency distinction: The IRS specifically notes that an individual can be a US resident for income-tax purposes while being treated differently for gift-tax purposes. For gift tax, residency is determined by domicile — the place a person intends to make their permanent home — rather than by physical presence days or Green Card status. An NRI living in the US on an H-1B or L-1 visa may be a US resident for income tax purposes but a non-domiciliary for gift tax purposes, which changes the rules significantly.
What constitutes a gift? Any transfer of property for less than full and adequate consideration is a gift. This includes cash, real estate, stocks, forgiven loans, and interest-free loans above a threshold amount.
US-situated property: Non-domiciliaries are subject to US gift tax only on gifts of US-situated tangible property — physical assets located in the US at the time of the gift. Importantly, US stocks and securities transferred by a non-domiciliary are generally not subject to US gift tax (unlike the estate tax treatment, where US stocks are included). This is a significant difference that creates planning opportunities.
Gifts to family in India: Cash gifts sent to parents or relatives in India are generally not subject to US gift tax if the donor is a non-domiciliary, since cash transferred abroad is intangible property. However, gifts of US-situated real estate or tangible property located in the US would be covered.
Annual exclusion: The annual gift tax exclusion allows a donor to give up to $18,000 per recipient per year (2024 figure, indexed annually) without filing a gift tax return. Gifts within this limit don’t count against the lifetime exemption.
Gifts between spouses: For gifts between US citizen spouses, an unlimited marital deduction applies. For gifts to a non-citizen spouse (which applies to many NRI couples), the annual exclusion is significantly higher — $185,000 in 2024 — but the unlimited marital deduction does not apply.
Reporting: Form 709 is used by US citizens and domiciliaries to report taxable gifts. Non-domiciliaries who make taxable gifts of US-situated tangible property may need to file Form 709 as well. The filing is separate from the income tax return and is due on April 15 of the year following the gift.
Exit Tax for US NRIs
The exit tax — formally the US expatriation tax — applies when a US citizen renounces their citizenship or when a long-term permanent resident relinquishes their Green Card. For NRIs considering a permanent return to India, this is a tax that demands advance planning, not a last-minute filing.
Who qualifies as a covered expatriate? Not everyone who leaves the US triggers exit tax — only those who meet the definition of a “covered expatriate”:
- Net worth test: Net worth of $2 million or more on the date of expatriation
- Tax liability test: Average annual net US income tax liability exceeding $190,000 (2024 threshold, adjusted for inflation) for the five years preceding expatriation
- Certification test: Failure to certify compliance with all US tax obligations for the five years preceding expatriation
Meeting any one of these three criteria makes you a covered expatriate.
What happens to assets when leaving the US? A covered expatriate is treated as having sold all worldwide assets at fair market value on the day before expatriation. Any gain above the exclusion amount ($866,000 in 2024) is taxed at capital gains rates in the year of expatriation. Certain assets — deferred compensation, pension interests, and interests in non-grantor trusts — receive special treatment rather than mark-to-market taxation.
Long-term residents: Green Card holders who have been lawful permanent residents for at least 8 of the last 15 tax years are considered long-term residents and may be subject to exit tax when they abandon their Green Card. Simply “letting the Green Card lapse” without formally filing Form I-407 does not avoid the obligation.
Estate Tax vs Gift Tax vs Exit Tax: Key Differences
Common Tax Planning Mistakes US NRIs Should Avoid
- Assuming NRI status removes estate tax exposure: Non-resident aliens still face US estate tax on US-situated assets, including stocks and real estate, with only a $60,000 exemption.
- Gifting US stocks to avoid estate tax: Transferring US stocks as gifts does not trigger gift tax for non-domiciliaries — but gifting US real estate does. Knowing which assets are covered by gift tax is essential before using gifts as a planning tool.
- Letting a Green Card lapse without formal relinquishment: A Green Card that has “expired” functionally may still be considered valid for tax purposes until Form I-407 is properly filed, leaving exit tax obligations unresolved.
- Not filing Form 8854 after expatriation: Covered expatriates must file Form 8854 in the year of expatriation and certify five-year tax compliance. Missing this filing can result in the individual being treated as a covered expatriate by default, regardless of whether they otherwise qualify.
- Overlooking US stocks held in Indian demat or brokerage accounts: US-listed securities held through Indian brokerage platforms are still considered US-situated assets for estate tax purposes.
- Failing to plan for the post-2025 estate tax exemption cliff: The current elevated exemption is scheduled to drop significantly after 2025 without legislative action. NRIs with US citizenship and substantial assets should review their exposure well before the sunset.
How US NRIs Can Plan Their Assets Before Moving Back to India
For NRIs planning a permanent return to India, the window before departure is the most valuable planning period. Once expatriation happens, many options close permanently.
- Assess covered expatriate status early: Calculate net worth and average tax liability at least two to three years before the planned departure date. If you’re close to a threshold, there may be steps available — restructuring assets, accelerating income recognition, or adjusting deferred compensation — that reduce exposure, but these take time.
- Consider gifting US assets before expatriation: Since certain inter-spousal gifts and annual exclusion gifts do not trigger gift tax and don’t count against the exit tax calculation, systematic gifting in the years before departure can reduce the asset base subject to the mark-to-market deemed sale.
- Review trust structures: Assets held in certain trust structures may receive different exit tax treatment than directly held assets. A US tax attorney can evaluate whether existing trusts serve the intended purpose under expatriation rules.
- Rebalance the US portfolio strategically: Selling appreciated US assets before expatriation — paying current capital gains tax — may be preferable to the exit tax treatment if the gain would otherwise exceed the exclusion and face higher effective rates under the mark-to-market regime.
- Coordinate Indian and US estate planning: Ensure any will or estate plan is valid and enforceable in both India and the US. Update beneficiary designations on US retirement accounts and confirm that Indian nominees are recognised appropriately under both legal systems.
- Time the departure carefully: The date of expatriation determines the deemed sale price for exit tax purposes. A departure timed around a market correction or asset dip can reduce the gain subject to the mark-to-market tax.
When Should a US NRI Seek Professional Tax & Financial Planning Advice?
The honest answer is: earlier than you think. Estate tax for US NRIs is not a problem that announces itself — it shows up at death or departure, when options are limited and timelines are compressed. A few clear triggers should prompt professional consultation:
Seek advice at least three to five years before a planned return to India if you hold significant US assets, have a net worth approaching $2 million, or have held a Green Card for seven or more years. Each of these situations involves planning windows that close at the moment of expatriation.
Seek advice immediately after receiving a large inheritance, making a significant gift, or acquiring US real estate — all of these transactions have reporting implications that can compound if left unaddressed.
And seek advice any time your life structure changes substantially: marriage to a non-citizen spouse, the birth of a child, a major liquidity event, or a shift in where you intend to permanently live. Each of these changes how the US estate, gift, and exit tax rules apply to your specific situation.
Conclusion
Estate, gift, and exit taxes are three separate obligations with three separate triggers — but for US NRIs, they often intersect in ways that create compounding exposure if left unplanned. Understanding estate tax for US NRIs, knowing how gift tax residency differs from income tax residency, and assessing exit tax risk well before a planned departure are not optional exercises for NRIs with substantial US ties. They are the foundation of any serious cross-border wealth plan. The time to act is not at the airport — it’s years before.
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Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.
Featured in The Economic Times | Host of Money Talks with Kashish on YouTube.
FAQs
Frequently Asked questions
1. Is estate tax for US NRIs only on assets in the US?
For non-resident aliens, yes — US estate tax applies only to US-situated assets, primarily US real estate, US stocks, and tangible property located in the US. The exemption for NRAs is $60,000, which is far lower than the exemption available to US citizens.
2. Do I pay US gift tax if I send money to my parents in India?
Generally, no. Cash transferred abroad by a non-domiciliary is considered intangible property and is not subject to US gift tax. However, if you gift US real estate or tangible property located in the US, gift tax rules may apply.
3. What is the exit tax threshold for Green Card holders?
Long-term Green Card holders (8 of the last 15 years) who have a net worth of $2 million or more, an average annual tax liability exceeding $190,000 (2024), or who cannot certify five-year tax compliance are treated as covered expatriates and subject to exit tax.
4. Can I avoid exit tax by gifting assets before I leave the US?
Gifting assets before departure can reduce your net worth below the $2 million threshold, but the IRS has rules designed to prevent last-minute transfers from being used solely to avoid covered expatriate status. Planning should begin years in advance and be guided by a qualified tax professional.
5. Do I need to file a US tax return in the year I renounce citizenship or give up my Green Card?
Yes. Covered expatriates must file Form 8854 along with their final US income tax return for the year of expatriation, certifying compliance with all US tax obligations for the prior five years. Failure to file can result in being treated as a covered expatriate regardless of your actual status.