Proprietorship, partnership firm, LLP or private limited – which structure keeps more of your profit in Tax Year 2026-27? The Income-tax Act, 2025 is now in force (from 1 April 2026) – the rates are unchanged but every section has a new number, and this comparison is built on the new Act: partner remuneration under Section 35(e), the company regime under Section 200, presumptive taxation under Section 58 and the startup deduction under Section 140. Enter your expected profit and see all three tax outcomes side by side – entity tax, owner tax and the dividend layer – plus the compliance scoreboard that usually matters more than the tax gap.
Compare the structures
Beyond tax – the compliance scoreboard (July 2026)
| Factor | Proprietorship | Partnership firm | LLP | Private limited |
|---|---|---|---|---|
| Liability | Unlimited – personal assets exposed | Unlimited, joint and several | Limited to contribution | Limited to shares |
| Formation cost | Nearly nil | Deed + stamp duty (registration optional – an unregistered firm cannot sue, Sec 69) | FiLLiP Rs 500-5,000 + agreement stamp duty | SPICe+ – MCA fee zero up to Rs 15 lakh capital; stamp duty and DSCs extra |
| Annual filings | ITR only | ITR-5 only | ITR-5 + Form 11 (30 May) + Form 8 (30 Oct) | ITR-6 + AOC-4, MGT-7/7A, ADT-1, DPT-3, MSME-1, AGM, board meetings |
| Statutory audit | Only by turnover (tax audit) | Only by turnover (tax audit) | Only if turnover above Rs 40 lakh or contribution above Rs 25 lakh | Mandatory every year, at any size |
| Presumptive taxation (Sec 58) | Yes – 8/6 percent to Rs 2/3 crore, 50 percent to Rs 50/75 lakh | Yes | No – LLPs are excluded | No – companies never eligible |
| Small-company relief | – | – | Small LLP: half late-fee multiples | Small company (paid-up to Rs 10 crore AND turnover to Rs 100 crore, from 1 Dec 2025): MGT-7A, 2 board meetings, no CARO, half penalties |
| Fundraising and ESOPs | Loans only | Partner capital and loans | Partner capital and loans – no shares or ESOPs | Equity, CCPS, ESOPs – the only VC-fundable structure |
| DPIIT startup + Sec 140 holiday | Not eligible | DPIIT possible if registered; Sec 140 NO | DPIIT yes; Sec 140 yes (incorporate before 1 Apr 2030) | DPIIT yes; Sec 140 yes |
| Exit / closure | Just stop | Dissolution deed | Form 24 – Rs 500-1,000, 3-6 months | STK-2 – Rs 10,000, filings must be current first |
Choosing a business structure – FAQs
Did the Income-tax Act 2025 change the tax rates for any structure?
No – the new Act, in force from 1 April 2026, is a re-enactment with simplified language and new section numbers, and the CBDT has confirmed it imposes no new tax. Individual slabs, the 30 percent firm rate and the company regimes all carry over. What changed is the citations: 40(b) is now Section 35(e), 115BAA is Section 200, 44AD and 44ADA merged into Section 58, and 80-IAC became Section 140. One terminology shift matters for paperwork: assessment year is gone – everything now runs on the single “tax year”.
Which structure pays the least tax on the same profit?
It genuinely depends on the profit level and how many owners share it. Around Rs 12 lakh per owner, personal-slab structures win because the Section 156 rebate wipes tax up to that level. As profits grow, a firm or LLP paying maximum deductible partner remuneration often beats both the proprietorship (which stacks the whole profit on one person’s slabs) and the company (which adds a dividend layer). The calculator above does the actual arithmetic for your numbers.
How much partner remuneration can a firm or LLP deduct now?
Under Section 35(e) of the new Act – the old 40(b) with the enhanced 2024 limits – on the first Rs 6 lakh of book profit (or in a loss year), the higher of Rs 3 lakh or 90 percent; on the balance, 60 percent. Interest to partners is capped at 12 percent simple. Remuneration is taxed in the partners hands at slab rates, payments above Rs 20,000 a year attract 10 percent TDS, and the partners share of post-tax profit stays exempt.
What is the double taxation problem with a private limited company?
The company pays its own tax – about 25.17 percent under the Section 200 regime – and when the balance reaches shareholders as dividend it is taxed again at their slab rates, with 10 percent TDS above Rs 10,000. Directors salary softens this: it is deductible for the company and carries the Rs 75,000 standard deduction personally. And from Tax Year 2026-27, buyback proceeds are taxed as capital gains again rather than as deemed dividend – a Finance Act 2026 change worth knowing before planning extraction.
Can an LLP use presumptive taxation?
No – Section 58 of the new Act (the merged 44AD/44ADA scheme) covers resident individuals, HUFs and partnership firms, but expressly excludes LLPs, and companies were never eligible. A small trader choosing between a partnership firm and an LLP should weigh this: the firm can declare 6 or 8 percent presumptive income, the LLP must maintain full books.
Is audit mandatory for all these structures?
Only for the company – a private limited needs a statutory audit every year regardless of size. An LLP needs one only when turnover crosses Rs 40 lakh or contribution crosses Rs 25 lakh. Proprietorships and firms face only the tax audit thresholds – Rs 1 crore, or Rs 10 crore where cash receipts and payments both stay within 5 percent.
What compliance does a private limited company actually involve?
The annual set: statutory audit, AGM by 30 September, AOC-4 within 30 days and MGT-7 or 7A within 60 days of the AGM (late fees run Rs 100 a day, uncapped), ADT-1 for the auditor, DPT-3, MSME-1 half-yearly, and at least two board meetings for small companies. The good news: the small-company net widened from 1 December 2025 to paid-up capital up to Rs 10 crore and turnover up to Rs 100 crore, and DIR-3 KYC became a once-in-three-years filing from 31 March 2026.
Which structures qualify for DPIIT startup recognition and the tax holiday?
DPIIT recognition (revised February 2026) covers private limited companies, LLPs, registered partnership firms and now cooperative societies – with turnover up to Rs 200 crore. But the Section 140 tax holiday – 100 percent of profits for any 3 of the first 10 years – is available only to companies and LLPs incorporated before 1 April 2030. A proprietorship qualifies for neither.
When does a private limited make sense despite the extra compliance?
When you need what only it offers: equity fundraising and ESOPs for a venture-scale plan, credibility with large customers and lenders, clean founder exits, or FDI on the automatic route. If none of those apply and the business is a stable services or trading operation, an LLP usually gives the limited liability at a fraction of the compliance.
Can I change structure later?
Yes, along defined paths: a firm can convert to an LLP or a company, an LLP can convert to a company, and a proprietorship migrates by transferring the business into the new entity. Each conversion has tax-neutrality conditions, so the cheaper mistake is usually starting simple and converting when the need is real – not incorporating a company on day one for a business that never needed it.
Method notes: computed for Tax Year 2026-27 under the Income-tax Act, 2025 (in force 1 April 2026) as amended by the Finance Act 2026 – new-regime individual rates with the Section 156 rebate and surcharge marginal relief, firm rate with Section 35(e) remuneration limits, the Section 200 company regime, dividend taxation at slab with the Rs 10,000 TDS threshold, and the Finance Act 2026 capital-gains treatment of buybacks. Compliance rows reflect the December 2025 small-company definition, the triennial DIR-3 KYC from March 2026, LLP audit thresholds and the revised DPIIT framework of February 2026. The comparison is indicative – GST, state levies, special deductions and the old regime are not modelled, and structure choices have commercial consequences beyond tax. Computations run entirely in your browser. Reviewed by a practising CA; updated July 2026.