info@acountablepartners.com
How to Structure Your Business for Tax Efficiency in India
12/08/2025
Share Now
Choosing the right business structure can help you minimise tax liability, remain compliant, and plan for long-term financial stability.
In this post, we’ll walk you through the major business structures in India and how each impacts taxation.
1. Proprietorship
Best suited for: Freelancers, consultants, small traders
Tax treatment:
Profits are taxed as personal income under the individual’s slab rate.
No separate business tax return — income is reported in your personal ITR.
Pros: Easy setup, minimal compliance.
Cons: Higher tax liability if your income crosses higher tax slabs, unlimited personal liability.
2. Partnership Firm
Best suited for: Small businesses with 2+ owners
Tax treatment:
Flat 30% tax on profits, plus applicable surcharge and cess.
Partners’ share of profit is exempt in their personal tax return (but remuneration is taxable).
Pros: Shared responsibility, simple to set up.
Cons: Higher tax rate than some other structures, unlimited liability for partners.
3. Limited Liability Partnership (LLP)
Best suited for: Professional firms, service-based businesses
Tax treatment:
Flat 30% tax on profits.
Dividend distribution tax not applicable — profits can be withdrawn without additional tax.
Pros: Limited liability, fewer compliance requirements than a company.
Cons: Not suitable if you plan to raise venture capital or list on stock exchange.
4. Private Limited Company
Best suited for: Startups aiming for growth, raising investment
Tax treatment:
Corporate tax rate of 22% (plus surcharge & cess) for domestic companies under the new regime, provided no exemptions are claimed.
Dividend taxed in the hands of shareholders as per their slab rate.
Pros: Limited liability, easier access to funding, credibility with clients/investors.
Cons: Higher compliance cost, double taxation on dividends.
5. One Person Company (OPC)
Best suited for: Solo entrepreneurs wanting limited liability
Tax treatment:
Similar to a private limited company (22% plus surcharge and education cess)
Pros: Combines benefits of proprietorship and company structure.
Cons: Restrictions on turnover and conversion once limits are crossed.
Key Tips for Tax Efficiency
Choose based on growth plans: If you’re aiming for quick expansion and investment, a company may offer more advantages.
Consider personal vs. business tax rates: Sometimes a simpler structure like an LLP can be more tax-efficient than a company.
Utilise deductions & exemptions: Take advantage of depreciation, business expenses, and tax holidays where available.
Review regularly: Tax laws change frequently; revisit your structure every 2–3 years with your CA.
