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For businessesRates reviewed September 2026

Business Entity Tax Comparison: Proprietorship vs LLP vs Private Limited

This entity comparison calculator puts one profit figure through the three structures a small Indian business usually chooses between and reports the total tax each one pays for FY 2026-27 (AY 2027-28) under the Income-tax Act, 2025. A proprietorship pays tax once, at the owner's slab rates under the new regime of section 202 (earlier 115BAC) or the old regime. A partnership firm or LLP pays a flat 30% and its partners pay slab tax on the remuneration they draw, while their share of the firm's profit is exempt in their hands. A private limited company pays 25% or 30%, or 22% under section 200 (earlier 115BAA), and its shareholders then pay slab tax again on whatever is paid out as dividend.

Remuneration is what makes the comparison interesting. A firm can deduct working partner remuneration only up to the ceiling in section 35(e), earlier 40(b): the higher of ₹3,00,000 or 90% of the first ₹6,00,000 of book profit, plus 60% of the balance. A company can deduct director salary in full, and the director gets the ₹75,000 standard deduction against it. The calculator applies both rules to the remuneration you enter and splits it, and any dividend, equally between the owners.

The rates are those enacted for tax year 2026-27 by the Finance Act, 2026. Firms and LLPs pay 30% plus 12% surcharge above ₹1 crore of total income. A domestic company pays 25% if its turnover in tax year 2024-25 did not exceed ₹400 crore and 30% otherwise, with 7% surcharge above ₹1 crore and 12% above ₹10 crore, or a flat 22% plus 10% surcharge under section 200 in exchange for giving up most deductions and exemptions. Health and education cess of 4% applies to every structure, and marginal relief is built into the surcharge.

Treat the output as a tax-only answer. It ignores compliance cost, limited liability, the ease of raising equity, ESOPs, exit and succession, and it assumes the retained profit of a company is either fully distributed or not distributed at all. Those factors often outweigh a few lakh of tax difference, so use the numbers to frame the decision rather than to make it.

Business Entity Tax Comparison

Business profit for the year before any salary or remuneration to the owners, partners or directors.

₹

Total across all owners. Paid as partner remuneration in a firm and as director salary in a company.

₹

Remuneration and dividend are shared equally between them.

Company distributes its post-tax profit as dividend

Dividend is taxed again in the shareholders' hands at slab rates.

Lowest all-in tax

₹9,98,400

Partnership or LLP, ahead of Proprietorship, new regime at ₹11,23,200

Proprietorship, new regimeslab tax on the whole ₹50,00,000, section 202
₹11,23,200
Proprietorship, old regimeslab tax on the whole profit, no deductions assumed
₹13,65,000
Remuneration deductible for the firmwithin the ₹31,80,000 ceiling under section 35(e), earlier 40(b)
₹18,00,000
Firm or LLP tax30% on ₹32,00,000, 4% cess
₹9,98,400
Partners' tax on remuneration₹9,00,000 each at slab, share of profit exempt
₹0
Partnership or LLP, all-in₹9,98,400 firm plus ₹0 partners
₹9,98,400
Company tax at 25%on ₹32,00,000 after salary, 4% cess
₹8,32,000
Shareholders' tax on salary and dividend₹4,20,680 of it on the ₹23,68,000 dividend
₹4,20,680
Private limited company, 25% rate, all-in₹8,32,000 company plus ₹4,20,680 shareholders
₹12,52,680
Private limited company, section 200 rate, all-in₹8,05,376 company at 22% plus 10% surcharge, plus ₹4,27,602 shareholders
₹12,32,978
  • Tax-only comparison for FY 2026-27 (AY 2027-28). It ignores compliance cost, limited liability, funding, exit and succession, which usually matter more than the tax gap.
  • Partners and shareholders are taxed under the new regime of section 202 with equal shares. Partner remuneration is business income; director salary gets the ₹75,000 standard deduction. Proprietorship figures assume a single owner.
  • The company's dividend is the whole post-tax profit when distributed. Surcharge on the dividend component is computed at the slab-based rate; the 15% cap on surcharge for dividend income is not modelled.
  • Firm figures assume no interest on partner capital and that the deed authorises the remuneration. AMT and MAT are not applied, since no profit-linked deduction is assumed.

The formula

Proprietorship = Slab tax on profit | Firm or LLP = 30% on (profit − deductible remuneration) + partners' slab tax on remuneration | Company = 25%, 30% or 22% on (profit − salary) + shareholders' slab tax on salary and dividend

Profit before owner remuneration
Business profit for the year before any salary, remuneration or commission to the owners, partners or directors, and before tax.
Deductible remuneration
For a firm, the lower of the remuneration drawn and the section 35(e), earlier 40(b), ceiling. For a company, the whole director salary.
Share of profit
A partner's share in the firm's post-tax profit, which is exempt in the partner's hands because the firm has already been taxed on it.
Dividend
The company's post-tax profit paid out to shareholders, taxed again in their hands at slab rates with the company's 10% TDS as a credit.
Section 200 rate
The optional 22% rate for domestic companies, earlier section 115BAA, with a 10% surcharge from the first rupee and 4% cess, an effective 25.168%.

Partners and shareholders are taxed under the new regime with equal shares. Surcharge on a shareholder's dividend is applied at the slab-based rate; the 15% cap on surcharge for dividend income is not modelled.

How to calculate it

  1. 1

    Start from the same profit for every structure

    Take the business profit for the year before any payment to the owners. The comparison only works if each structure starts from the same figure, so leave out owner salary, partner remuneration and interest on capital at this stage.

  2. 2

    Decide how much the owners will draw

    Enter the total remuneration the owners intend to take in the year. In a firm this is partner remuneration, deductible only up to the section 35(e) ceiling; in a company it is director salary, deductible in full and taxed as salary with the ₹75,000 standard deduction under the new regime.

  3. 3

    Compute the proprietorship

    The whole profit is the individual's business income. Apply the new regime slabs of section 202 with the section 87A rebate and surcharge, and the old regime slabs without deductions, then add 4% cess. The lower of the two is what a proprietor would actually pay.

  4. 4

    Compute the firm or LLP and its partners

    Deduct the allowable remuneration from profit and tax the balance at 30%, adding 12% surcharge if it exceeds ₹1 crore, with marginal relief, and 4% cess. Each partner then pays slab tax on their share of the remuneration. The share of the firm's profit is exempt in their hands, so there is no second layer on it.

  5. 5

    Compute the company and its shareholders

    Deduct salary from profit and tax the balance at 25% or 30% depending on the tax year 2024-25 turnover, or at 22% plus 10% surcharge under section 200. If the post-tax profit is distributed, each shareholder pays slab tax on their salary plus their share of the dividend, which is the second layer of tax the firm avoids.

  6. 6

    Compare the all-in totals

    Add the entity's tax to the owners' tax for each structure and pick the lowest. Then weigh it against what the calculator leaves out: limited liability, the cost of statutory audit and ROC filings for a company, the ease of raising equity, and whether the profit will in fact be paid out or reinvested.

Entity tax rates for FY 2026-27 (AY 2027-28) under the Income-tax Act, 2025

Entity tax rates for FY 2026-27 (AY 2027-28) under the Income-tax Act, 2025
StructureBase rateSurchargeSecond layer on the owners
Proprietorship, new regime (section 202, earlier 115BAC)Slab rates: nil to ₹4 lakh, then 5% to 30% above ₹24 lakh10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 croreNone, the profit is the owner's income
Proprietorship, old regimeSlab rates: nil to ₹2.5 lakh, 5%, 20%, then 30% above ₹10 lakh10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, 37% above ₹5 croreNone, the profit is the owner's income
Partnership firm or LLP30% of total income after deductible partner remuneration12% above ₹1 croreSlab tax on remuneration only; share of profit exempt
Domestic company, turnover up to ₹400 crore in tax year 2024-2525% of total income after director salary7% above ₹1 crore, 12% above ₹10 croreSlab tax on salary and on dividend received
Domestic company, turnover above ₹400 crore30% of total income after director salary7% above ₹1 crore, 12% above ₹10 croreSlab tax on salary and on dividend received
Domestic company under section 200 (earlier 115BAA)22% of total income, most deductions and exemptions given up10% on all incomeSlab tax on salary and on dividend received
Health and education cess4% of tax plus surcharge in every caseNot applicable4% on the owners' tax too

Worked example: two owners, ₹50 lakh profit, FY 2026-27

Profit before owner remuneration
₹50,00,000
Remuneration to be drawn
₹18,00,000 in total, ₹9,00,000 each
Owners
2 partners or shareholders
Company turnover in tax year 2024-25
Up to ₹400 crore, so 25%
Dividend
Post-tax profit fully distributed
  • Proprietorship, new regime: slab tax on ₹50,00,000 = ₹10,80,000, no surcharge, plus 4% cess = ₹11,23,200
  • Proprietorship, old regime: slab tax ₹13,12,500 plus cess ₹52,500 = ₹13,65,000
  • Firm: section 35(e) ceiling = ₹5,40,000 + 60% × ₹44,00,000 = ₹31,80,000, so the full ₹18,00,000 is deductible
  • Firm tax = 30% × ₹32,00,000 = ₹9,60,000 plus cess ₹38,400 = ₹9,98,400; each partner's ₹9,00,000 attracts nil tax after the section 87A rebate
  • Company at 25%: 25% × ₹32,00,000 = ₹8,00,000 plus cess ₹32,000 = ₹8,32,000; dividend = ₹32,00,000 − ₹8,32,000 = ₹23,68,000
  • Each shareholder: salary ₹9,00,000 less ₹75,000 plus dividend ₹11,84,000 = ₹20,09,000, tax ₹2,10,340; two shareholders ₹4,20,680; all-in ₹12,52,680
  • Company under section 200: 22% plus 10% surcharge plus cess on ₹32,00,000 = ₹8,05,376; shareholders ₹4,27,602; all-in ₹12,32,978

Lowest all-in tax = ₹9,98,400 as a partnership or LLP, against ₹11,23,200 as a proprietor and ₹12,32,978 as a company under section 200.

Frequently asked questions

On tax alone a firm or LLP usually wins when the profit is going to be paid out to the owners, because the partners' share of profit is exempt while a company's dividend is taxed again at slab rates. A company wins when profit is retained and reinvested, since 25% or 22% is below the firm's 30% and the second layer arises only on distribution. The calculator shows both cases; the answer flips depending on how much is drawn out.
No. The firm pays 30% plus surcharge and cess on its total income, and each partner's share of that post-tax profit is exempt in the partner's hands. Only salary, remuneration, commission, bonus and interest actually allowed to the firm are taxable for the partner, as business income at slab rates, and the firm deducts 10% TDS on those payments once they exceed ₹20,000 a year.
Twice, in effect. The company pays tax on its profit at 25%, 30% or 22%, and the post-tax amount it distributes is taxed in the shareholder's hands as income from other sources at slab rates, with surcharge on that component capped at 15%. The company deducts 10% TDS on dividend above ₹10,000 a year, which the shareholder claims as a credit against that tax.
30% of total income, plus a surcharge of 12% where total income exceeds ₹1 crore, plus 4% health and education cess, giving 31.2% below ₹1 crore and 34.944% above it. Marginal relief limits the surcharge so the extra tax cannot exceed the income above ₹1 crore. Alternate minimum tax at 18.5% applies only if the firm claims specified profit-linked deductions.
For tax year 2026-27 a domestic company pays 25% if its total turnover or gross receipts in tax year 2024-25 did not exceed ₹400 crore and it stays in the default regime of section 199. Any other domestic company pays 30%. Both carry 7% surcharge above ₹1 crore of total income and 12% above ₹10 crore, plus 4% cess. A company with no turnover in tax year 2024-25, such as one incorporated later, satisfies the test.
Section 200 of the Income-tax Act, 2025, earlier section 115BAA, lets a domestic company opt for 22% plus a fixed 10% surcharge and 4% cess, an effective 25.168%, in exchange for giving up most deductions and exemptions, including additional depreciation and deductions for units in special zones. It is cheaper than 25% plus cess for a company below ₹1 crore of income only marginally, at 25.168% against 26%, and the option once exercised cannot be withdrawn, so a company with large unclaimed deductions may be better off in the default regime.
Because it moves income from a flat 30% or 25% entity rate to the owners' slab rates, where the first ₹12 lakh of a new regime taxpayer's income attracts no tax after the section 87A rebate. A firm can only deduct remuneration up to the section 35(e) ceiling, earlier 40(b), and the excess is taxed in the firm and not in the partner's hands. A company can deduct director salary in full, but the director is taxed on it as salary. Drawing enough to use each owner's lower slabs, and no more, is where the saving comes from.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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