Many (HNI) resident India families have stock holdings accumulated over the years in USA in the forms of ESOPs, restricted stock units and LRS investments. In recent months, the valuation of the US stocks have surged. Many HNIs are finding the US estate tax exposure running into millions and also possible FEMA complications. In this article, let us explore the nuances in following sequence of topics:
1. US Inheritance Tax
2. EB-5 funding
3. FEMA Compliances
4. Way out
Let us elaborate:
1. US Inheritance Tax: The United States imposes a 40% estate (inheritance) tax on US situated assets of non-resident aliens (NRAs). The assets may be US stocks, US based real estate or funds in US bank accounts. The exemption is kept at $60,000/-. But for US citizens, the limit is $13.61 million. An HNI and his legal heirs will have to face the tax consequences upon succession. The succession has to be completed and the tax amount needs to be paid within 9 months of the death. There is no DTAA benefits available for HNIs or their legal heirs. The tax cost will be huge.
2. EB-5 funding: There are families seeking to put NRI children on the path of US permanent residency through EB-5 Immigrant Investor Program. The fund requirements are $ 8,00,000/- for targeted employment areas or $10,50,000/- in standard areas. There is the deadline of September 30, 2026. The HNI families may be contemplating to liquidate the US Stock, RSUs to fund subscription. But the FEMA requires the LRS funds to be brought back and then remitted. This will create compliance requirement.
3. FEMA Compliances: There are restructuring solutions like gifting stocks to children abroad or setting up offshore trusts, or buying insurance or repatriating sale proceeds for EB-5 funding have to comply with FEMA and its rules.
- Gifting US Stocks to NRI children: Section 6 (4) of FEMA and its FEM (Transfer or Issue of Foreign Security) Regulations restricts the gifting of overseas securities of a Resident relatives only (as per Companies Act)
- Gifting proceeds on encashment of ESOPs or RSUs in US stocks: This will also come under the regulatory requirements because the underlying assets are foreign securities bought through LRS or through employment compensation.
- Setting up trust or foreign insurance coverage will require prior RBI approval under FEM (Overseas Investment) Rules 2022.
- LRS proceeds must be remitted back to India on bank block within . months. Keeping idle overseas money is a FEMA violation.
- There are instances of NRO accounts being used for EB-5 funding. This is grey area. Once the child becomes NRI, FEMA requires the savings account to be converted to NRE/NRO accounts.
4. Way Out:
- Gifting US stocks before NRI status: This is the best tax mitigation strategy. Once the children become NRIs, the window closes. If the children eventually becomes US citizens, the exemption limit is much higher.
- Restructuring with RBI approval: This is the most compliant procedure but demands formal application, presentation, legal opinions and valuation. Through this, the US equity holdings can be structured in trust like formats.
- Obtaining overseas insurance products with RBI approval and premiums coming under LRS limit can be another way
- LRS based EB-5 funding is the best way, where the sale proceeds of US stocks are brought back to India and then remitted back under LRS limit. However, this will be incremental costs and compliance requirements. This will help in EB-5 adjudication if USCIS or the Regional Centre question the lawful sources of funds.
Final Remarks: There are parallel areas to look for. A structuring decision made purely for US tax efficiency can create a FEMA violation. An EB-5 funding strategy that satisfies USCIS source-of-funds rules may still be non-compliant under FEMA. With the RBI tightening LRS scrutiny via the PRAVAAH portal, the cost of non-compliance has risen sharply. Proactive advisory is essential, not optional.
Indian HNIs with US equity exposure cannot wait for a death, an immigration filing, or an IRS notice to begin planning. The intersection of US estate tax, FEMA’s exchange control architecture, and EB-5 compliance is complex — but navigable with timely, expert cross-border advisory.
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In case, you are HNIs and have exposure to US inheritance tax, EB-5 funding or FEMA, and have any concern and queries or need any support, you may like to contact us.
CA. Abhinarayan Mishra, FCA, FCS, IP, RV; Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; 9910744992, ca.abhimishra@gmail.com; @crossbordertaxindia; www.crossbordertaxindia.com
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