Another idea that a lot of Indian professionals with US ESOPs/RSUs are considering is to create a foreign company to hold their US shares. This will act as a “shield” and is therefore a โsmartโ way to solve for US estate tax, so that their family benefits. Conceptually clever. In reality? Itโs a minefield.
Hereโs what you need to know:
๐ญ. ๐จ๐ฆ ๐๐ฅ๐ฆ (๐๐ป๐๐ฒ๐ฟ๐ป๐ฎ๐น ๐ฅ๐ฒ๐๐ฒ๐ป๐๐ฒ ๐ฆ๐ฒ๐ฟ๐๐ถ๐ฐ๐ฒ) ๐๐ป๐๐ฒ๐ฟ๐๐ถ๐ผ๐ป ๐ฅ๐๐น๐ฒ๐ ๐ฎ๐ฟ๐ฒ ๐๐น๐ฒ๐ฎ๐ฟ: If you own 80% or more of the foreign company you set up, and itโs just a holding shell with no real business abroad, the IRS can treat your company as a US corporation. That means your US shares are still exposed to US estate tax.
๐ฎ. ๐๐ผ๐บ๐ฝ๐น๐ฒ๐ ๐ถ๐๐ ๐ฎ๐ป๐ฑ ๐๐ผ๐๐: Setting up and maintaining a foreign company isnโt cheap or simple. Getting Overseas Direct Investment (ODI) approval in India to set up/own shares in a foreign company can take months.
๐ฏ. ๐ง๐ฎ๐ ๐ฎ๐ป๐ฑ ๐๐ผ๐บ๐ฝ๐น๐ถ๐ฎ๐ป๐ฐ๐ฒ ๐๐ฒ๐ฎ๐ฑ๐ฎ๐ฐ๐ต๐ฒ๐: Repatriating dividends, handling double taxation, and keeping up with Indian and US reporting requirements can quickly become overwhelming. The paperwork alone is enough to make anyone reconsider.
Unless you build a real business with substance outside the US, the risks far outweigh the rewards. The IRS has seen every trick in the book, and theyโve closed the loopholes.
Bottom line:
Setting up a foreign company to solve for US estate tax on your ESOPs/RSUs is rarely worth it. The rules are stacked against you, the costs are high, and the risks are real. For most, simpler solutions, like diversifying into European domiciled UCITS deliver better results, less stress, and fewer surprises.
If youโre thinking about this route, letโs connect at reachout@zinc.money
The USD / INR currency pair represents the exchange rate between the US Dollar (USD) and the Indian Rupee (INR). Simply put, it tells you how many Indian rupees are needed to purchase one US dollar. This pair is one of the most actively watched in the foreign exchange market, especially for businesses, NRIs, policy-makers, and retail investors with exposure to either currency.
As India continues to assert itself on the global economic stage, movements in the rupee against the dollar have far-reaching implications for inflation, trade balances, corporate profitability, and foreign investment flows.
Historical Overview of USD/INR
Indiaโs exchange rate regime has evolved considerably over the past decades:
Pre-1991: India followed a fixed exchange rate system. The rupee was pegged to a basket of currencies, but primarily managed against the US dollar. Due to fiscal imbalances and external account pressures, the rupee was devalued twice in 1991 during a balance of payments crisis.
Post-1991 Liberalization: A managed float system was adopted. Since then, USD/ INR has mostly been market-determined, though the RBI often intervenes to prevent excessive volatility.
Post-1991 Liberalization, the USD/ INR currency pair experienced a significant surge in liquidity, driven by increased participation from institutional players and a rise in speculative activity. Despite the Reserve Bank of India’s active interventions to maintain stability in the foreign exchange market, the pair has witnessed several periods of heightened volatility. These fluctuations have largely stemmed from global economic headwinds and persistent trade imbalances.
Key Factors That Influence USD/INR
1. Interest Rate Differentials
The interest rate gap between India and the USโparticularly the federal funds rate versus RBIโs repo rateโplays a pivotal role. When US rates rise, capital tends to flow back to dollar-denominated assets, leading to INR depreciation. Conversely, attractive Indian yields can bolster the rupee. This was evident during the 2022-2023 Fed hiking cycle.
2. Current Account Deficit (CAD)
India runs a current account deficit, importing more than it exportsโespecially oil and electronics. India imports over 80% of its crude oil. Any spike in oil prices increases import bills, widens the current account deficit, and pushes the INR lower.A widening deficit increases demand for dollars, exerting pressure on INR. In FY2022, Indiaโs current account deficit hit 2.7% of GDP, coinciding with INR nearing record lows.
3. RBI Intervention
Indiaโs central bank actively intervenes in the forex market via dollar sales or purchases to curb undue volatility and maintain macroeconomic stability.
RBIโs FX reserves act as a buffer.
The central bankโs swap programs, forward guidance, and liquidity management tools also influence the pair.
4. Foreign Portfolio Investment (FPI) and FDI Flows
High FPI inflows (especially into Indian equities and bonds) support the rupee. However, any hint of global uncertainty or monetary tightening causes capital flight, weakening INR.
Positive FPI Sentiment = INR strength
Global Risk-Off = INR weakness
USD/INR in the Current Context (2024-2025)
As of early 2025, the rupee has been trading in a band between โน84โโน86/USD, supported by:
Moderating US inflation, which has led to expectations of a Fed rate cut cycle beginning mid-2025
Improved forex reserves, now above $600 billion, providing the RBI ample firepower
FPI Outflows, continuing since few years leading to increased demand pressure in USD
However, volatility cannot be ruled out due to global uncertainty, including tensions in the Red Sea, possible delays in Fed rate cuts, and any domestic fiscal slippages post-election.
Future Outlook for USD/INR
Structural depreciation of INR is likely to continue, but in a gradual and controlled fashion. Historically, INR has depreciated by ~3โ4% annually against the dollar due to inflation differentials and productivity gaps. Sustained capital expenditure, energy imports, and infrastructure investments may continue to keep the demand for USD strong.
The USD/INR pair is shaped by a dynamic mix of domestic and global forces. While the long-term trend has been one of depreciation due to inflation differentials and current account gaps, active RBI management and improving Indian fundamentals are providing a cushion. Going forward, policy direction from the Fed, oil prices, and Indiaโs macro strength post-2024 elections will determine the rupee’s path.
The USD/INR pair is much more than a forex quoteโit’s a reflection of the complex interplay between global capital, monetary policy, and national resilience. For investors, a thoughtful approach to currency exposure can enhance returns, hedge risks, and open new opportunities.
At Zinc, we help parents comprehensively plan for their childโs global education, including building a dollar education corpus to hedge against INR depreciation. Our SEBI-registered investment advisors help estimate college costs and curate actively managed International ETF portfolios to help you financially secure your childโs global education dreams.
For more information, please visit our website or get in touch with us at +91 8422854460
