📊 Overview
| Feature | Private Limited Company | LLP | Partnership Firm |
|---|---|---|---|
| Taxed as | Separate Legal Entity (Company Tax) | Separate Legal Entity (Firm Tax) | Separate Legal Entity (Firm Tax) |
| Tax Authority | Income Tax Act, 1961 | Income Tax Act, 1961 | Income Tax Act, 1961 |
1️⃣ Income Tax Rates
🔹 Private Limited Company
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Base Corporate Tax Rate: 22% (Domestic company under Section 115BAA)
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Surcharge: 10% (if total income > ₹1 crore)
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Health and Education Cess: 4%
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Effective Rate: ~25.17%
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Alternative Tax Rate: 15% (New Manufacturing Companies under Section 115BAB)
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Effective Rate: ~17.16%
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MAT (Minimum Alternate Tax): 15% (if Section 115BAA not opted)
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With surcharge and cess: ~17.47%
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🔹 LLP
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Flat Tax Rate: 30%
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Surcharge: 12% (if total income > ₹1 crore)
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Health and Education Cess: 4%
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Effective Rate: 31.2% (if income ≤ ₹1 crore) or ~34.94% (if income > ₹1 crore)
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No Dividend Distribution Tax (DDT)
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Partners are taxed individually on share of profits (exempt) and remuneration/interest (taxable).
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🔹 Partnership Firm
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Flat Tax Rate: 30%
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Surcharge: 12% (if total income > ₹1 crore)
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Health and Education Cess: 4%
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Effective Rate: 31.2% (if income ≤ ₹1 crore) or ~34.94% (if income > ₹1 crore)
-
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No Dividend Distribution Tax (DDT)
-
Partners are taxed individually on share of profits (exempt) and remuneration/interest (taxable).
-
2️⃣ Remuneration and Interest Paid to Partners
| Feature | LLP & Partnership Firm | Private Limited Company |
|---|---|---|
| Remuneration to Partners | Allowed as deductible expense within limits specified under Sec. 40(b). | Paid as salary to directors (deductible as expense subject to reasonable limit & TDS). |
| Interest to Partners | Allowed as expense up to 12% p.a. | Treated as loan interest; deductible as expense. |
3️⃣ Dividend Distribution Tax (DDT)
| Feature | Private Limited Company | LLP & Partnership Firm |
|---|---|---|
| Dividend Tax | Abolished from FY 2020-21. Dividends taxed in hands of shareholders at applicable slab rate. | No dividend; partners’ share is exempt. |
4️⃣ Surcharge and Cess
| Feature | Private Limited Company | LLP & Partnership Firm |
|---|---|---|
| Surcharge | 7% (income > ₹1 crore up to ₹10 crore), 12% (income > ₹10 crore). | 12% (income > ₹1 crore). |
| Health & Education Cess | 4% | 4% |
5️⃣ MAT / AMT
| Feature | Private Limited Company | LLP & Partnership Firm |
|---|---|---|
| MAT (Minimum Alternate Tax) | 15% of book profit (Section 115JB) — can be reduced with 115BAA/115BAB. | AMT applies if claiming certain deductions — 18.5% of adjusted total income. |
6️⃣ Carry Forward & Set Off of Losses
| Feature | Private Limited Company | LLP & Partnership Firm |
|---|---|---|
| Carry Forward of Losses | Allowed with continuity of 51% shareholding. | Allowed if business continues and return filed on time. |
7️⃣ Compliance Burden
| Feature | Private Limited Company | LLP & Partnership Firm |
|---|---|---|
| Annual Filing | ROC Annual Return, Financials, Income Tax Return, Auditor’s Report. | ROC Annual Return, Financials, Income Tax Return. |
| Audit Requirement | Mandatory statutory audit under Companies Act regardless of turnover. | Mandatory audit if turnover > ₹40 lakhs or contribution > ₹25 lakhs. |
🔍 Key Takeaways
✅ Private Limited Companies: Lower corporate tax rates with options to reduce MAT; higher compliance; dividends taxed in hands of shareholders.
✅ LLPs: Flexibility of partnership; higher tax rate than domestic companies; no dividend tax; moderate compliance.
✅ Partnership Firms: Similar tax treatment as LLPs; simpler structure; easier to manage but lacks limited liability.
📝 Conclusion
When choosing between a Private Limited, LLP, or Partnership Firm in India, consider:
🔹 Expected income and tax rates
🔹 Compliance requirements
🔹 Liability protection
🔹 Investment plans and growth strategy
