Old vs new tax regime for RSU and foreign income holders (2026)

India's new tax regime is the default from FY 2024-25. For most salaried employees in India, it's also the better choice — lower slab rates, less paperwork. But if you receive RSU vesting income, US dividends, or a foreign component to your compensation, the decision is not obvious. The old regime's deductions can still win.

This guide maps out the decision clearly. Use the old vs new regime calculator to run your exact numbers.

---

The regime basics

Old regime — higher slab rates, but you keep all deductions: HRA, 80C (₹1.5 lakh), 80D (health insurance), 80CCD(1B) (NPS top-up ₹50,000), home loan interest, LTA, and more.

New regime — lower slab rates, but almost all deductions are gone. Only the ₹75,000 standard deduction on salary survives from FY 2024-25.

New regime slab rates (FY 2026-27):

Taxable income	Rate
Up to ₹4 lakh	Nil
₹4–8 lakh	5%
₹8–12 lakh	10%
₹12–16 lakh	15%
₹16–20 lakh	20%
₹20–24 lakh	25%
Above ₹24 lakh	30%

The new regime also gives a full rebate under Section 87A up to ₹12 lakh total income (i.e., nil tax liability below ₹12 lakh before surcharge and cess). This rebate does not apply to special-rate income like long-term capital gains.

---

How RSU income interacts with the regime

When your RSUs vest, the difference between the fair market value on vest date and your acquisition cost (usually zero for grants) is treated as a perquisite — salary income. This gets added to your gross salary.

The critical point: RSU perquisites push your total income into higher slabs. A ₹20 lakh base salary plus ₹15 lakh in RSU vesting = ₹35 lakh taxable income before deductions. At that level, slab rates under the old regime (30%) and new regime (also 30% above ₹24 lakh) converge — so the deductions available under the old regime become the deciding factor.

What deductions actually move the needle at ₹35 lakh+

• 80C — ₹1.5 lakh (PF, ELSS, PPF, life insurance): always worth claiming
• 80D — ₹25,000–₹50,000 (health insurance): standard for anyone with a family floater
• 80CCD(1B) — ₹50,000 (NPS top-up): an additional ₹50,000 beyond the 80C ceiling
• HRA (if paying rent): can be significant in metro cities — 40–50% of basic salary
• Home loan interest — up to ₹2 lakh (Section 24b): only applicable if you have a loan
• Standard deduction on salary — ₹75,000 (available in both regimes from FY 2024-25)

A single employee with no HRA, no home loan, maxing 80C + 80D + NPS: roughly ₹2.25 lakh in deductions beyond the standard deduction. At 30%, that saves ≈₹67,500 in tax versus the new regime at the same income level.

---

US dividends and foreign income

US stock dividends (15% withheld at source under the India-US DTAA with a W-8BEN) are added to your total income in India and taxed at slab rates under whichever regime you choose. The 15% US withholding becomes a Foreign Tax Credit (via Form 67, or Form 44 from TY 2026-27) to offset your Indian tax liability.

Foreign income itself does not change which regime is better — it just increases your total income, pushing more of it into the 30% slab where deductions under the old regime are worth more in absolute rupees.

---

The breakeven analysis

The old regime wins when your total available deductions (beyond standard deduction) exceed approximately ₹2 lakh at a 30% marginal rate, i.e., when the tax saved exceeds the compliance cost of claiming them. For most RSU holders with a PF contribution, health insurance, and any NPS participation, this threshold is crossed easily.

The new regime wins when:

• Your income is below ₹12 lakh (the Section 87A rebate zone, where nil tax is possible)
• You have no HRA claim, no 80C investments, no home loan — total deductions are less than the standard deduction advantage of the new regime
• You are a freelancer or consultant with complex business income and want simplicity

---

Worked example

Scenario: Salaried employee, ₹22 lakh base CTC, ₹10 lakh RSU vest in the year, ₹1.5 lakh US dividends (after 15% US WHT), paying rent of ₹25,000/month in Bengaluru.

Item	Old regime	New regime
Gross income	₹33.5 lakh	₹33.5 lakh
Standard deduction	−₹75,000	−₹75,000
HRA exemption (approx.)	−₹1.8 lakh	Not available
80C	−₹1.5 lakh	Not available
80D	−₹25,000	Not available
80CCD(1B) NPS	−₹50,000	Not available
Taxable income	≈₹28.7 lakh	≈₹32.75 lakh
Tax (approx., pre-cess)	≈₹7.0 lakh	≈₹8.2 lakh
Saving in old regime	≈₹1.2 lakh	—

In this scenario the old regime wins by roughly ₹1.2 lakh. The margin narrows as income rises (both converge at 30%) and widens as deductions grow (HRA in a metro, home loan interest).

---

How to decide

1. Add up your actual claimable deductions — not theoretical maximums, what you genuinely invest and spend
2. Compute tax under both regimes on your projected total income (salary + RSU perquisite + dividends + capital gains)
3. The one with lower liability wins — but also factor in the compliance cost of the old regime if your deductions require documentation
4. Make the choice at the start of the financial year and inform your employer (via Form 12BB) so TDS is deducted correctly

The old vs new regime calculator lets you enter your salary, RSU income, foreign dividends, and each deduction bucket to see the comparison instantly.

---

One thing RSU holders often miss

RSU perquisites are taxed via TDS at vest — your employer deducts tax in the month of vesting. If your employer uses the new regime for TDS but you plan to file under the old regime at ITR time, you will get a refund. If it's the other way around, you'll have a tax demand. Align your TDS regime declaration with your ITR filing intent to avoid interest under Section 234B/234C.

---

The one-line version

If you have RSU income + HRA + active 80C/80D investments, run the numbers — the old regime often still wins by ₹75,000–₹1.5 lakh at income levels above ₹20 lakh. Use the calculator to know for sure before your employer locks in the TDS regime for the year.