Income Tax for Business in India —
Rates, Audit & ITR
How your business is taxed by legal form — proprietorship, partnership, LLP and company — with rates, advance tax, tax-audit thresholds, presumptive schemes and the right ITR form for FY 2025-26.
How your business is taxed depends on its legal form. A sole proprietorship is taxed at the owner's personal slab rates. A partnership firm or LLP pays a flat 30% (plus surcharge and 4% cess). A domestic company pays 22% under Section 115BAA (concessional regime), 25% if turnover is up to Rs400 crore, else 30%; a new manufacturing company can opt for 15% under Section 115BAB. Every business must pay advance tax if the tax due exceeds Rs10,000.
Business Income Tax Rates by Entity — AY 2026-27
The tax rate, applicable ITR form and audit trigger differ by the legal form of your business. Use this table to place your entity, then read the section below it.
| Business Type | Tax Rate | ITR Form | Audit Threshold |
|---|---|---|---|
| Sole proprietorship | Slab (Nil–30%) | ITR-3 / ITR-4 | Turnover > Rs1cr (Rs10cr if ~all digital) |
| Partnership firm | 30% flat | ITR-5 | Turnover > Rs1cr (Rs10cr if ~all digital) |
| LLP | 30% flat | ITR-5 | Turnover > Rs1cr (Rs10cr if ~all digital) |
| Company — Sec 115BAA | 22% | ITR-6 | All companies (mandatory) |
| Company — turnover ≤ Rs400cr | 25% | ITR-6 | All companies (mandatory) |
| Company — others (old regime) | 30% | ITR-6 | All companies (mandatory) |
| New manufacturing co. — Sec 115BAB | 15% | ITR-6 | All companies (mandatory) |
Rates are before surcharge and 4% Health & Education Cess. Under 115BAA the effective rate is ~25.17%; under 115BAB ~17.16%. Verify current provisions on incometax.gov.in before filing.
Section 115BAB's 15% rate applied only to new domestic manufacturing companies incorporated on or after 1 Oct 2019 that commenced production on or before 31 March 2024. Companies that already opted in continue at 15%, but the concessional regime is no longer open to newly set-up manufacturers.
Proprietorship — Slab Rates & Presumptive Tax
A sole proprietorship is not a separate taxable entity — the business income is clubbed with the owner's other income and taxed at personal slab rates. The new regime is the default for AY 2026-27; the proprietor may opt for the old regime to claim Chapter VI-A deductions.
- Presumptive tax under Section 44AD if turnover is up to Rs3 crore (Rs2 crore where cash receipts exceed 5%): profit deemed at 8% of turnover, or 6% for digital/banking receipts.
- Professionals under Section 44ADA with gross receipts up to Rs75 lakh declare 50% of receipts as income.
- Use ITR-4 for presumptive income; ITR-3 where regular books are maintained.
- Maintain books under Section 44AA once income or turnover crosses the prescribed limits; keep them for audit if applicable.
New-regime slabs for AY 2026-27: Nil up to Rs4L, then 5% (Rs4–8L), 10% (Rs8–12L), 15% (Rs12–16L), 20% (Rs16–20L), 25% (Rs20–24L) and 30% above Rs24L. The Section 87A rebate makes tax nil for a resident with taxable income up to Rs12,00,000, and a Rs75,000 standard deduction on salary lifts the nil point to about Rs12.75L for salaried proprietors.
Not sure whether the old or new regime is cheaper for your business income?
Compare Old vs New →Partnership Firm & LLP — 30% Flat & Partner Deductions
Partnership firms and LLPs are taxed at a flat 30% on taxable income, plus surcharge (12% where income exceeds Rs1 crore) and 4% cess. Unlike individuals, they get no slab benefit and no regime choice. The main lever is deductible payments to partners.
- Interest to partners is deductible up to 12% per annum on capital (Section 40(b)).
- Remuneration to working partners is deductible within the Section 40(b) ceiling — on book profit up to Rs6 lakh, Rs3 lakh or 90%, whichever is higher; 60% on book profit above Rs6 lakh.
- Partners are taxed individually on remuneration and interest received; their share of firm profit is exempt in their hands.
- File ITR-5. An LLP must also file Form 11 and Form 8 with the MCA each year.
Partnership firm — Rs20L book profit
Company (115BAA) — Rs20L profit
Beyond ITR-5 with the Income Tax Department, every LLP must file Form 11 (annual return) and Form 8 (statement of account & solvency) with the MCA. Missing these attracts a daily penalty independent of any income-tax default.
Company Tax — 115BAA, 25% & Old Regime
A domestic private limited company chooses between the concessional and the old regimes. Most companies now opt for Section 115BAA.
Section 115BAA — concessional
- Open to all domestic companies
- No exemptions/deductions except Sec 32 & 80JJAA
- Once opted, the choice is irreversible
- No MAT applicability
- Effective rate ~25.17% with surcharge & cess
Old regime — with incentives
- 25% if turnover up to Rs400 crore, else 30%
- Retains deductions, incentives & carry-forwards
- MAT at 15% of book profit applies
- Suits companies using SEZ/startup incentives
- Surcharge 7% (Rs1–10cr) / 12% (above Rs10cr)
A new manufacturing company that opted in on time is taxed at 15% under Section 115BAB (effective ~17.16%). Every company is audited under the Companies Act and files ITR-6; see the current corporate tax rate guide for surcharge slabs.
Deciding between 115BAA and the old regime for your company?
Talk to a CA →Advance Tax, Books & Tax-Audit Thresholds
Every business must pay advance tax in four instalments (15 Jun, 15 Sep, 15 Dec, 15 Mar) if the tax due exceeds Rs10,000; shortfalls attract interest under Sections 234B and 234C. A tax audit under Section 44AB applies as below.
| Entity | Books Required? | Tax Audit (Sec 44AB) | Due Date |
|---|---|---|---|
| Sole proprietor (business) | If turnover > Rs25L or income > Rs2.5L | Turnover > Rs1cr (or Rs10cr if cash ≤ 5%) | 30 September |
| Professional | If receipts > Rs25L or income > Rs2.5L | Gross receipts > Rs50L | 30 September |
| Partnership / LLP | Always | Turnover > Rs1cr (or Rs10cr if cash ≤ 5%) | 30 September |
| Company | Always (Companies Act 2013) | Mandatory — all companies | 30 September |
A tax audit is also triggered when a taxpayer who claimed presumptive tax opts out within 5 years, or declares profit below the presumptive rate while income exceeds the basic exemption.
- PAN / TAN for the business
- Correct entity classification & regime
- Books of accounts (Sec 44AA)
- Advance tax in 4 instalments
- TDS deduction & return filing
- Tax audit (Form 3CD) if applicable
- Right ITR form (3/4/5/6)
- Carry-forward of losses via timely ITR
- LLP Form 8 & Form 11 (MCA)
- Company ROC annual filings
Business losses can be carried forward for 8 assessment years, but only if the ITR is filed by the original due date. A belated return forfeits the right to carry forward the current year's business loss — though unabsorbed depreciation can still be carried forward indefinitely.
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