INCOME TAX FOR BUSINESS PERSON

Income tax for a business holder in India depends directly on how the business is legally set up. 

                                                    Choose Your Business Type

Business Type How You Are Taxed Tax Rate

Sole Proprietorship Taxed like an individual Standard Slab Rates (0% to 30%)

Partnership Firm / LLP Taxed as a separate entity Flat 30% on total profit

Private Limited Company Taxed as a corporate entity       22% or 25% (for standard 

businesses)

1. Opting for Sole Proprietorship

If you run a business alone under your own name, the government treats you and your business as the same person. You pay tax based on personal income tax slabs. 

• The Tax Rules: You can choose between the Old Tax Regime or the default New Tax Regime. You only pay tax if your net profit (plus other income) crosses the basic limit.

• Easy Tax Option: If your turnover is up to ₹2 Crores (or ₹3 Crores with low cash transactions), you can use the Presumptive Taxation Scheme under Section 44AD. This allows you to claim a flat 6% (for digital sales) or 8% (for cash sales) of your turnover as your profit. You do not need to maintain complex accounting bills.

• Which ITR to file: You must file ITR-3 or ITR-4 (Sugam). 

2. Registering a Partnership or LLP

If you have business partners, the firm is taxed separate from the owners. 

• The Tax Rules: The firm pays a straight 30% tax on its net profit. A 4% education cess is added to this tax amount.

• Partner Salary: The firm can deduct the salary or interest paid to partners from its total business income to reduce its tax load.

• Which ITR to file: You must use ITR-5. 

3. Incorporating a Company

Private Limited Companies enjoy lower tax base rates but face strict compliance laws. 

• The Tax Rules: Most domestic companies pay a standard corporate tax rate of 22% or 25% depending on the specific regime they pick.

• Which ITR to file: All companies must file ITR-6.