Income Tax for Business in India — Rates, ITR Forms & Compliance 2025-26

Updated: 3 June 2026 | Income-tax Act, 2025 | FY 2025-26 / AY 2026-27

Business income tax rates in India (AY 2026-27): Sole proprietorship — taxed at personal slab rates (up to 30%). Partnership firm / LLP — 30% flat + surcharge + cess. Private limited company — 22% (Section 115BAA, new regime) or 25% (old regime, turnover ≤ ₹400 Cr) or 30% (others). New manufacturing companies (setup before 31 Mar 2024) — 15% (Section 115BAB). All must pay advance tax if liability exceeds ₹10,000.

22%

Lowest corporate tax rate for domestic companies under Section 115BAA.
No exemptions or deductions (except depreciation and Section 80JJAA). Opt in once — irrevocable choice. Effective rate: ~25.17% with surcharge & cess.

Business Income Tax Rates by Entity Type — AY 2026-27

The tax structure differs significantly based on the legal form of your business. Here is a complete comparison:

Business Type	Tax Rate	Advance Tax	ITR Form	Audit Threshold
Sole Proprietorship	Personal slab rates (0% to 30%)	If tax > ₹10K	ITR-3 / ITR-4	Turnover > ₹1 Cr (₹10 Cr if 95% digital)
Partnership Firm	30% flat + 12% surcharge (if income > ₹1 Cr) + 4% cess	Mandatory if tax > ₹10K	ITR-5	Turnover > ₹1 Cr (₹10 Cr if 95% digital)
LLP	30% flat + surcharge + 4% cess	Mandatory if tax > ₹10K	ITR-5	Turnover > ₹1 Cr (₹10 Cr if 95% digital)
Pvt Ltd / Ltd Company	22% (115BAA) or 25% (turnover ≤ ₹400 Cr) or 30%	Mandatory (quarterly)	ITR-6	All companies (mandatory audit)
New Mfg. Company	15% (Section 115BAB, incorporated & commenced before 31-Mar-2024)	Mandatory (quarterly)	ITR-6	All companies (mandatory audit)

Note: Effective rates include 4% Health and Education Cess. Surcharge applies at 7% (income ₹1–10 Cr) and 12% (above ₹10 Cr) for partnership/LLP. For companies: 7% (income ₹1–10 Cr) and 12% (above ₹10 Cr).

Sole Proprietorship — Personal Slab Rates & Presumptive Taxation

A sole proprietorship is not a separate legal entity — the owner's income and business income are taxed together at personal slab rates. Key points:

Can use Section 44AD presumptive taxation if business turnover does not exceed ₹3 crore (₹2 crore if cash receipts > 5% of total). Deemed profit: 8% of turnover (6% for digital receipts).
Use ITR-4 for 44AD presumptive; ITR-3 if maintaining books.
Must maintain books of accounts if turnover exceeds ₹25 lakh or income exceeds ₹2.5 lakh (Section 44AA).
Tax audit u/s 44AB required if turnover exceeds ₹1 crore (or ₹10 crore in fully digital cases).

Partnership Firm & LLP — 30% Flat Rate & Partner Deductions

Partnership firms and LLPs are taxed at a flat 30% on taxable income (plus surcharge and cess). The key deduction is remuneration and interest paid to partners:

Interest to partners: deductible up to 12% per annum on capital balance (Section 40(b)).
Remuneration to working partners: deductible subject to Section 40(b) limits (90% of first ₹6L book profit; 60% above ₹6L).
Partners are taxed individually on remuneration received (salary head) and interest (IFOS or business). Their share of firm profit is exempt in their hands.
LLP partners: same treatment as partnership partners for remuneration and interest.

LLP Compliance: LLPs must file Form 11 (Annual Return) and Form 8 (Statement of Account & Solvency) with MCA every year, in addition to ITR-5 with the Income Tax Department. Missing MCA filings attract late fees.

Private Limited Company — Tax Rates & Section 115BAA

Domestic companies have three main tax rate options:

Section 115BAA (New Regime) — 22%: Available to all domestic companies. No exemptions/deductions except depreciation (Section 32) and employment deduction (Section 80JJAA). Once opted, irrevocable. Effective rate with surcharge and cess: ~25.17%.
25% rate: For companies with total turnover/gross receipts ≤ ₹400 crore in FY 2021-22 (under old regime). Effective rate: ~26%.
30% rate: All other domestic companies under old regime. Effective rate: ~31.2–34.9% with surcharge.
Section 115BAB — 15%: For new domestic manufacturing companies incorporated and commencing production on or before 31 March 2024. Effective rate: ~17.01%.

Advance Tax for Businesses

All businesses — sole proprietorships, partnerships, LLPs, and companies — must pay advance tax if estimated tax liability exceeds ₹10,000. Companies pay in four installments (same schedule as individuals). Failure to pay attracts interest u/s 234B and 234C.

Books of Accounts & Tax Audit Thresholds

Entity	Books Required?	Audit Required? (Section 44AB)	Audit Due Date
Sole proprietor (business)	Yes, if turnover > ₹25L or income > ₹2.5L	Turnover > ₹1 Cr (or ₹10 Cr digital)	30 September
Professional	Yes, if receipts > ₹25L or income > ₹2.5L	Receipts > ₹50 lakh	30 September
Partnership / LLP	Always	Turnover > ₹1 Cr (or ₹10 Cr digital)	30 September
Private Limited / Company	Always (Companies Act 2013)	Mandatory — all companies	30 September

Frequently Asked Questions

What is the remuneration limit for partners under Section 40(b)?

Under Section 40(b), a partnership firm can pay remuneration to working partners and deduct it from firm income, subject to limits: on the first ₹6 lakh of book profit — ₹3 lakh or 90% of book profit, whichever is higher; on book profit above ₹6 lakh — 60% of the excess. Interest paid to partners is deductible up to 12% per annum. These limits apply equally to LLPs. Remuneration beyond these limits is disallowed and taxed in the firm's hands.

Is it more tax-efficient to run a company vs a proprietorship?

A private limited company is taxed at 22% (under Section 115BAA, new regime, no exemptions/deductions other than depreciation) or 25% (existing regime, turnover ≤ ₹400 Cr). A sole proprietorship is taxed at personal slab rates (up to 30% + surcharge). For income above ₹15 lakh, the company rate of 22% may be lower than the proprietorship's 30% slab. However, dividend distribution (DDT abolished, now taxable in shareholder's hands) and compliance costs must also be considered. A CA analysis is recommended for individual situations.

Can a business carry forward losses to future years?

Yes. Business losses can be carried forward for up to 8 assessment years and set off against business income in subsequent years. Speculative business losses (e.g., intraday trading) can only be set off against speculative profits. Unabsorbed depreciation can be carried forward indefinitely. To carry forward a loss, you must file your ITR by the original due date — if you file a belated return, you lose the right to carry forward the current year's business loss (though unabsorbed depreciation can still be carried forward).

What is the depreciation benefit for businesses?

Businesses can claim depreciation under Section 32 on tangible assets (buildings, machinery, computers, furniture) and intangible assets (goodwill, patents, trademarks). Key rates: computers and software — 40%; motor vehicles (non-personal) — 15-30%; plant and machinery — 15%; buildings — 5-10%. An additional 20% depreciation (Section 32AC) is available for new plant and machinery investment exceeding ₹25 crore. Depreciation is a non-cash expense that reduces taxable profit without a cash outflow.

When is a tax audit mandatory for a business?

Under Section 44AB, a tax audit by a Chartered Accountant is mandatory if: (1) business turnover exceeds ₹1 crore (or ₹10 crore if cash transactions are below 5% of total receipts/payments); (2) a professional's gross receipts exceed ₹50 lakh; (3) a business opts out of presumptive taxation (44AD/44ADA) having claimed it in the preceding 5 years; or (4) profits declared are below the presumptive rate under 44AD/44ADA. The tax audit report (Form 3CD) must be filed by 30 September of the assessment year.

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