I am an Indian holding a US green card for over 13 years, but am now considering relinquishing it. Will an exit tax apply in my case, and how does it work? Additionally, I want to make a gift to my daughter, who is a US resident. What would be the tax implications of such gifting?
– Name withheld on request
Under US tax law, individuals who give up citizenship or relinquish a “long-term” green card (held for eight years or more) may be subject to the exit tax provisions under the internal revenue code (IRC). This applies if they qualify as a “covered expatriate.” An individual is classified as a covered expatriate if, at the time of exit, they meet any of the following conditions (based on 2026 thresholds): a net worth of $2 million or more; an average annual US income tax liability exceeding $211,000 over the previous five years; or failure to certify compliance with US tax obligations for the preceding five years.
Even if the financial thresholds are not met, individuals must still certify their tax compliance by filing the prescribed forms—most notably Form 8854—along with their final tax return. Failure to do so can, in itself, result in being classified as a covered expatriate. Importantly, this classification is permanent and irrevocable.
Once an individual is treated as a covered expatriate, a “deemed sale” mechanism applies. This means that all worldwide assets are considered to have been sold at fair market value on the day prior to expatriation, and any resulting gains may be taxed accordingly.
The tax treatment of gifts also changes significantly in such cases. Ordinarily, US tax rules place the liability on the person making the gift. However, if a covered expatriate makes a gift to a US person, the burden shifts to the recipient. In such instances, the recipient may be subject to a tax of up to 40% on the value of the gift exceeding the annual exclusion threshold (currently $19,000 for 2026).
However, the 40% tax does not operate as a straightjacket rule. Its applicability can vary depending on factors such as whether the recipient is a US person, and whether the gift is made directly or routed through a trust (whether in India or overseas).
Since your daughter is a US resident, this rule would likely apply to her, subject to the specific structuring and timing of the transfer.
Rohit Jain is the managing partner and Keshav Singhania is the head of private client at Singhania & Co.
