This guide explains how to read the Pvt Ltd vs LLP tax comparison above, how owner pay and payout change the answer, and what the calculator leaves out. The headline rate rarely decides it. On ₹30 lakh of profit with one owner and all after-tax profit paid out, the same private limited company pays ₹10,26,730 in total tax with no director's salary and ₹5,79,694 with a ₹24 lakh salary.
Pvt Ltd vs LLP tax: why the headline rate is not the answer
A company on the 22% option pays 25.168% on its profit and an LLP pays 31.2% up to ₹1 crore, yet the LLP often costs less in total. The reason is the second layer of tax: dividends from a company are taxed again in the owner's hands, while an LLP partner's share of profit is exempt.
So the business tax comparison calculator adds up three things for each structure:
- Tax paid by the business on the profit left after owner pay.
- Tax the owners pay on salary or remuneration, at slab rates.
- Tax the owners pay on what is taken out: dividend from a company is taxable (surcharge capped at 15%), drawings of an LLP's after-tax profit are not.
A proprietorship has a single layer. The whole profit is the owner's income at slab rates, so there is no second tax and no deduction for paying yourself.
How much salary should a director take to cut total tax?
Within reason, more salary usually means less total tax for a company. Salary is deductible for the company and taxed once at slab rates, while profit paid as dividend is taxed twice. The tool's numbers below show the effect at ₹30 lakh of profit.
| Salary to the one owner | Pvt Ltd total tax | LLP total tax | Proprietorship |
|---|---|---|---|
| Nil | ₹10,26,730 | ₹9,36,000 | ₹4,99,200 |
| ₹12 lakh | ₹7,87,481 | ₹5,61,600 | ₹4,99,200 |
| ₹24 lakh | ₹5,79,694 | ₹5,22,080 | ₹4,99,200 |
Example. Profit of ₹30 lakh, one owner, all after-tax profit paid out, new regime, company on the 22% option. At ₹24 lakh salary the company is taxed on only ₹6 lakh (₹1,51,008), and the owner pays ₹4,28,686 on salary plus dividend. The LLP can deduct only ₹19,80,000 of the ₹24 lakh, because that is the remuneration limit on ₹30 lakh of book profit.
Two limits apply. An LLP can deduct remuneration only for working partners, only if the LLP agreement authorises it, and only within the book-profit limit in section 35(e) of the Income-tax Act 2025 (section 40(b) of the 1961 Act). For a company, the tax officer can disallow the part of a director's salary that is excessive or unreasonable under section 36(2) (section 40A(2) of the 1961 Act). Set pay that matches the work done.
When does a private limited company pay less tax than an LLP?
A company wins when profit stays in the business. Retained company profit bears only 25.168%, while an LLP pays 31.2% (34.944% above ₹1 crore) whether or not partners draw the money. When most profit is paid out each year, the LLP or proprietorship usually comes out lower.
Which structure pays less tax depends mostly on the payout setting in the tool. Take ₹60 lakh of profit, one owner, ₹12 lakh salary, new regime:
| After-tax profit paid out | Pvt Ltd | LLP | Proprietorship |
|---|---|---|---|
| 100% | ₹22,42,948 | ₹14,97,600 | ₹15,78,720 |
| None | ₹12,08,064 | ₹14,97,600 | ₹15,78,720 |
The company's lower figure is partly a deferral. The ₹35,91,936 it keeps is taxed as dividend whenever it is paid out later. That still suits a business that needs to reinvest, raise equity or build reserves. Founders who plan to apply for the Startup India tax holiday also need a company or LLP, since a proprietorship cannot claim it.
Is a proprietorship cheaper than a company or LLP?
For one owner who takes all the profit out, often yes. Under the new regime a resident proprietor pays no tax on income up to ₹12 lakh because of the rebate in section 156 (section 87A of the 1961 Act), and there is no business-level tax at all. The proprietorship is lowest in all three rows of the salary table above.
A proprietor can also use presumptive taxation, which the calculator leaves out. Under section 58 of the 2025 Act (sections 44AD and 44ADA of the 1961 Act):
- A resident individual, HUF or firm other than an LLP with business turnover up to ₹2 crore (₹3 crore if cash receipts are 5% or less of turnover) can declare 6% of receipts through banking or online modes and 8% of the rest as profit, or the actual profit if higher. Commission, brokerage and agency businesses are excluded.
- A resident individual or firm other than an LLP in a specified profession, with gross receipts up to ₹50 lakh (₹75 lakh if cash receipts are 5% or less), can declare 50% as profit.
- Companies and LLPs cannot use it.
Example. A proprietor with ₹1.5 crore of turnover, all received by bank transfer, declares 6%: ₹9,00,000. Slab tax is ₹30,000, the rebate wipes it out, and the tax is nil for a resident under the new regime.
The trade-off is not tax. Growth plans, outside investors and personal liability often matter more, and the Business Structure Finder weighs those.
How the 22% company tax option works (section 200, earlier 115BAA)
A domestic company can choose 22% under section 200 of the Income-tax Act 2025 (section 115BAA of the 1961 Act). Surcharge is a flat 10% at every income level, so the rate is 25.168% with cess. The choice is made by the return due date, applies to later years and cannot be withdrawn.
What the company gives up:
- Deductions under Chapter VIII of the 2025 Act, other than sections 146 and 148, which includes the section 140 (80-IAC) tax holiday.
- Certain other deductions listed in section 205(1).
What it gains: minimum alternate tax does not apply to a company that has opted under section 200, and the rate stays flat above ₹1 crore. Under the normal rates, a company with base-year turnover up to ₹400 crore pays 25%, which is 26% with cess up to ₹1 crore of income and 27.82% from ₹1 crore to ₹10 crore (before marginal relief), and MAT can apply. In the tool, ₹30 lakh of profit with one owner, ₹12 lakh salary and full payout costs ₹7,87,481 in total at 22% and ₹7,97,784 at 25%.
What changed for tax year 2026-27 under the Income-tax Act 2025?
The rates did not change; the section numbers did. Slabs, company and LLP rates, surcharge and cess are the same for FY 2025-26 and tax year 2026-27 under Finance Act 2026. The 2025 Act applies from 1 April 2026, and "tax year" replaces "previous year" and "assessment year".
| Topic | 1961 Act | 2025 Act |
|---|---|---|
| 22% company option | 115BAA | 200 |
| New regime slabs | 115BAC(1A) | 202 |
| Rebate up to ₹12 lakh | 87A | 156 |
| Partner remuneration and interest limits | 40(b) | 35(e) |
| Excessive payment to a director | 40A(2) | 36(2) |
| Presumptive taxation | 44AD, 44ADA | 58 |
| Tax audit | 44AB | 63 |
| TDS on partner remuneration | 194T | 393(3) |
Returns for FY 2025-26 still follow the 1961 Act. The tool lets you switch between the two years, and the result is the same.
Common mistakes when comparing structures
Most bad comparisons come from looking at one layer of tax. Watch for these errors:
- Comparing 25.168% with 31.2% and stopping there, without the dividend tax on the company side.
- Paying LLP remuneration that the LLP agreement does not authorise, or paying it to a partner who is not a working partner. It is disallowed.
- Paying partners interest on capital above 12% simple interest a year. The excess is disallowed.
- Forgetting TDS on partner payments: 10% once salary, remuneration, commission, bonus or interest to a partner exceeds ₹20,000 in a financial year, from 1 April 2025. Late deposit attracts interest; the TDS late fee and interest calculator works it out.
- Opting for 22% in the first return and later wanting the startup tax holiday. The option cannot be reversed.
- Ignoring the cost of audits and filings. A company needs a statutory audit every year; check yours with the audit applicability checker.
How Ofin can help
Our CAs can rerun this comparison on your actual figures, including other income, deductions and MAT, and then set up the structure that fits. We register a private limited company from ₹8,999, an LLP from ₹9,999 and a proprietorship from ₹2,899.
