New tax regime with RSU income: should you opt in for AY 2026-27?

The new tax regime is now the default in India. If you file ITR-2 without explicitly opting out, you're in the new regime.

For most salaried Indians, the comparison is straightforward: calculate tax under both regimes, pick the lower one. For RSU holders, there are a few wrinkles worth understanding before making the choice.

The two regimes: slab rates compared (AY 2026-27)

New tax regime (Section 115BAC) — default

Section 87A rebate under the new regime: tax nil up to total income of ₹12 lakh (rebate of up to ₹60,000 eliminates tax entirely at incomes up to ₹12 lakh). Above ₹12 lakh, full tax applies from the first rupee — no marginal relief built in.

Old tax regime

Section 87A rebate under the old regime: tax nil up to total income of ₹5 lakh (rebate of up to ₹12,500).

Both regimes add surcharge (10% on tax if income exceeds ₹50 lakh; 15% if above ₹1 crore; 25% above ₹2 crore; 37% above ₹5 crore — but 15% cap on LTCG/STCG surcharge) and 4% health and education cess on tax + surcharge.

What the new regime removes (deductions lost)

The new regime's effective benefit: the slab rates are substantially lower at incomes between ₹7–15 lakh, and the ₹75,000 standard deduction is higher. The cost: 80C, HRA, and housing loan interest are gone.

What stays the same for RSU holders under both regimes

Capital gains taxation

Capital gains tax rates are identical under both regimes:

The difference between regimes only affects the slab rate applied to STCG. If your RSU shares are STCG (held < 24 months), the new regime's lower slabs could apply — or the old regime's higher slabs, offset by deductions.

Foreign tax credit (Form 44)

FTC on US withholding tax (1042-S dividends, sometimes RSU perquisite withholding) is available under both regimes. The DTAA between India and the US allows this credit regardless of which regime you choose.

Schedule FA disclosure

Mandatory under both regimes. No effect of regime choice on foreign asset disclosure obligations.

Section 87A rebate on capital gains

The Section 87A rebate is available on special-rate income (STCG on foreign equity) under the old regime, but not under the new regime. This is the key asymmetry.

Under the new regime, Section 87A rebate applies only to tax on income at normal slab rates — capital gains taxed at special rates (12.5% LTCG, or STCG on foreign equity) are excluded from the rebate calculation. This is a significant disadvantage for RSU holders with small or moderate capital gains.

The Section 87A controversy and safe position for AY 2026-27 is covered in detail separately.

The break-even analysis

The new regime saves tax when the additional tax saved by lower slabs exceeds the value of deductions lost.

Rough break-even for a typical salaried employee:

If your combined deductions under the old regime (80C + 80D + HRA + housing loan interest) exceed approximately ₹2.5–3 lakh, the old regime is likely better at the ₹10–15 lakh income band. Below that level of deductions, the new regime usually wins.

For RSU holders specifically:

A concrete example

Profile: Salaried RSU holder, FY 2025-26

• Gross salary: ₹18 lakh
• RSU perquisite (vest): ₹4 lakh
• RSU STCG (shares sold, held 8 months): ₹2 lakh
• Standard deduction: ₹75,000 (new) / ₹50,000 (old)
• 80C investments: ₹1.5 lakh (old only)
• HRA exemption: ₹1.2 lakh (old only)
• No housing loan

Total income (old): ₹18L + ₹4L + ₹2L − ₹50K − ₹1.5L − ₹1.2L = ₹20.8 lakh Total income (new): ₹18L + ₹4L + ₹2L − ₹75K = ₹23.25 lakh

Old regime tax (approximate):

• Slab tax on ₹18.8L ordinary income: ~₹4.1L
• STCG on ₹2L at slab rate (~30%): ~₹60K
• Subtotal: ~₹4.7L + surcharge + cess

New regime tax (approximate):

• Slab tax on ₹21.25L ordinary income: ~₹3.8L (lower mid-band rates)
• STCG on ₹2L at slab rate (~30%): ~₹60K
• Subtotal: ~₹4.4L + surcharge + cess

In this example the new regime saves approximately ₹30,000–₹40,000 despite higher taxable income — because the slab savings on the ₹7–15 lakh band outweigh the deductions lost.

But if this person had a ₹1.5 lakh home loan interest deduction (self-occupied), the old regime would close the gap significantly.

How to choose in ITR-2

On the ITD e-filing portal:

The default is the new regime. To use the old regime, you must check the opt-out box in the personal information section of ITR-2 and file Form 10-IEA (for individuals without business income, this is done within the ITR-2 itself via the checkbox — no separate form required for salaried filers).

Practical approach:

1. Compute tax under both regimes using the ITD's tax calculator or a CA's estimate
2. Compare the net tax (after TDS credit and FTC)
3. Choose the regime that results in lower net tax
4. If uncertain, the ITD portal's ITR-2 pre-fill will often suggest the better option based on your AIS data

Salaried filers can switch regimes every year — the choice for AY 2026-27 does not bind you for AY 2027-28.

NPS employer contribution: the one deduction that survives

Section 80CCD(2) — the employer's contribution to your NPS account (up to 14% of salary for central government employees, 10% for others) — is available under the new regime. This is the exception to the "no deductions" rule.

For RSU holders whose employer contributes to NPS, this deduction is worth claiming regardless of regime choice — it reduces taxable income without requiring any personal outflow.

Complete tax computation: RSU holder, new regime AY 2026-27

Here is a full worked example showing how new regime tax is computed for a typical RSU holder.

Profile: Salaried RSU holder, FY 2025-26 (AY 2026-27)

• Salary income: ₹40 lakh
• RSU perquisite (vest-date value, shown in Form 16 Part B): ₹15 lakh
• LTCG from selling RSUs held 24+ months: ₹5 lakh
• Standard deduction (new regime): ₹75,000

Step 1: Net salary income ₹40L + ₹15L − ₹75,000 = ₹54,25,000 (ordinary income at slab rates) LTCG of ₹5L is taxed separately at 12.5%.

Step 2: Tax on salary income under revised AY 2026-27 slabs

Step 3: Tax on LTCG ₹5,00,000 × 12.5% = ₹62,500

Note: Section 87A rebate does not apply here — total income far exceeds ₹12 lakh. Even where income is within ₹12L, the new regime's Section 87A rebate does not apply to LTCG or other special-rate income.

Step 4: Surcharge and cess Total tax = ₹11,07,500 + ₹62,500 = ₹11,70,000 Surcharge at 10% (income ₹50L–₹1Cr) = ₹1,17,000 Cess at 4% on (₹11,70,000 + ₹1,17,000) = ₹51,480 Total tax payable: approximately ₹13,38,480

New regime vs old regime: which wins at different income levels

The break-even shifts toward the new regime as income rises, because the revised AY 2026-27 slabs (nil up to ₹4L, 5% from ₹4–8L, 10% from ₹8–12L) provide larger savings on the mid-band income compared to the old regime's 20% rate in that range.

Summary

For most RSU holders, the decision comes down to how much you invest in 80C instruments and whether you claim HRA. If your total deductions under the old regime exceed ₹3–4 lakh, the old regime is likely better. Below that, the new regime typically wins on the mid-band slab savings — especially above ₹20 lakh income where the revised AY 2026-27 slabs provide meaningful relief on income from ₹4L to ₹24L. Run the exact numbers annually, as the answer changes if your deductions, housing situation, or RSU income changes year to year.