EaseValueChoosing a business structure is usually presented as a legal question and answered on instinct — a company sounds serious, a proprietorship sounds small, an LLP sounds like a compromise. The tax consequence is treated as a detail. It is not a detail: on the same profit, the total combined outgo across the three structures can differ by twenty percentage points, which on ₹2 crore of profit is nearly forty lakh rupees a year. This calculator runs one profit figure through all three, computing entity-level tax plus owner-level tax per ₹100 of profit in each case — slab rates for a proprietor, a flat rate for an LLP with the partner's share of profit exempt in the partner's hands, and corporate tax plus a second layer on extraction for a private company. It names the winner in rupees. The finding that surprises most owners is that the ranking is not fixed. It is driven almost entirely by how much of the profit you actually take out. A proprietor and an LLP partner are taxed on the profit whether it leaves the business or not, so their cost is unaffected by withdrawal. A company is taxed only on what is extracted, so it looks expensive at full extraction and cheap at low extraction. Make withdrawal an input and a single question becomes two different answers. The calculator also prices the annual compliance cost of each structure, because at small profits that column routinely outweighs the entire tax difference — and it says so when it does.
How it’s calculated
- Enter the annual profit before any owner remuneration and before tax. This is the same pool run through all three structures, and every percentage on the page is expressed against it.
- Set the withdrawal percentage — how much of the profit you actually take out of the business in the year. This is the single input that decides the answer, so treat it honestly rather than aspirationally.
- Enter any other personal income you already have. It stacks your slab before the business income lands, so the calculator reports the marginal cost of this profit rather than your entire tax bill.
- Choose the corporate rate the company would pay. The 22% concessional regime (old Section 115BAA) carries a flat 10% surcharge whatever the income, giving an effective 25.168%. The 25% and 30% rates carry surcharge only above ₹1 crore of company income, with marginal relief. Cess of 4% applies to all three.
- Enter the partner remuneration you would pay yourself in the LLP, or leave the field blank to take the maximum the law allows. An LLP may deduct working-partner remuneration only up to a ceiling worked out on book profit, and the calculator computes that ceiling, caps your figure to it, and shows both.
- Decide whether to count the eventual exit tax on profit left inside the company. Off, the company figure is the cost this year. On, it adds long-term capital gains at 12.5% plus cess on the retained profit, which is the true lifetime cost if you will one day sell the shares or wind up.
- Enter indicative annual compliance costs for the three structures in the last row — proprietor, LLP, company. The defaults are mid-market figures rather than law. Replace them with quotes you have actually been given, because at small profits this is what decides the outcome.
- Read the three cost rows. Each shows total outgo in rupees and as a percentage of profit, so you can compare structures at different profit levels on a like-for-like basis.
- Read the verdict. It names the cheapest structure and the rupee gap to the runner-up, on tax plus compliance rather than tax alone.
- Read the withdrawal flip row. It scans every withdrawal level from nil to full extraction and reports the point at which the company overtakes or falls behind the best alternative — the single most useful number on the page for anyone deciding whether to incorporate.
- Read the cash in your hands row, which reports what actually reaches you under the winning structure, and, for a company, how much is left inside the business after tax and compliance.
- Read the second box last. It tells you whether compliance cost rather than tax is deciding the outcome, and lists the non-tax factors — limited liability, audit and filing load, access to capital, reversibility — that at small scale usually outweigh the whole tax delta.
Three structures, three completely different tax mechanics
The three structures are not variations on a theme. They are taxed by three unrelated mechanisms, and understanding which one you are choosing matters more than memorising any rate.
A proprietorship is not a separate taxpayer at all. There is no entity-level tax because there is no entity — the business profit is simply your income, added to whatever else you earn and taxed at individual slab rates. Under the new regime that means nil up to ₹4 lakh, then 5%, 10%, 15%, 20%, 25% and 30% in ₹4 lakh steps, with the rebate under Section 156 making total income up to ₹12 lakh tax-free, surcharge from ₹50 lakh and 4% cess. Because there is only one layer, a proprietorship is unbeatable at low profits: on ₹10 lakh of profit the tax is nil, and the only cost is a modest compliance bill. Because there is only one layer, it also cannot escape the top slab: at ₹2 crore of profit the effective cost is 33.44% and there is no lever left to pull.
An LLP is a separate taxpayer, and it is taxed at a flat 30% with 12% surcharge above ₹1 crore of income and 4% cess — no slabs, no rebate, no progression. The compensating feature is decisive: a partner's share of LLP profit is exempt in the partner's hands. There is no second layer on distribution at all, which is what distinguishes an LLP from a company. On top of that, an LLP may deduct remuneration paid to working partners, within a statutory ceiling worked out on book profit — and remuneration inside that ceiling is deducted at 30% at LLP level and picked up at the partner's slab rate, which for most owners is lower. That arbitrage is what makes an LLP competitive at middling profits and, at large profits with full extraction, often the outright winner.
A private limited company is taxed twice, and this is not a defect of the design but the design itself. The company pays corporate tax on its profit — 25.168% under the 22% concessional regime, or 26% to 33.38% on the 25% and 30% rates depending on surcharge. Whatever survives can be distributed as dividend, which is added to your personal income and taxed again at slab rates, with no standard deduction available because dividend is not salary. Extract everything and you carry both layers in full. Extract nothing and you carry only the first. That asymmetry is the whole subject of this calculator.
Why withdrawal, not structure, is doing the deciding
Here is the finding that changes how the question should be asked. A proprietor is taxed on the profit whether or not the money leaves the business bank account — drawings are not a taxable event, because the profit was already your income. An LLP partner is in the same position: the LLP pays tax on its profit, and the partner's share is exempt whether it is withdrawn or left as capital. For both structures, therefore, the withdrawal percentage is completely irrelevant to tax. Move the slider from 0% to 100% and their cost does not change by a rupee.
The company alone is sensitive to it, because the second layer is triggered by distribution rather than by earning. Take ₹2 crore of profit and a company on the 22% concessional regime. Extract everything and the total outgo is ₹99,61,224 — 49.81% of profit, worse than either alternative by a wide margin. Extract 30% and the total falls to ₹60,57,655, or 30.29%, which beats the LLP at 31.69% and the proprietorship at 33.44%. Same profit, same company, same corporate rate. The only thing that moved was how much money came out, and it moved the answer by nearly ₹40 lakh.
The calculator therefore scans every withdrawal level and reports the crossover explicitly. On that ₹2 crore example, the company wins below 34.20% withdrawal and loses above it. That single number is more useful than any of the three cost figures, because it converts an abstract structural question into a concrete operational one: how much do you actually need to take out of this business to live? An owner who needs ₹40 lakh a year out of ₹2 crore of profit should incorporate. An owner who needs ₹1.6 crore should not. They have identical businesses and opposite correct answers.
The crossover is not fixed either — it moves with the corporate rate and with your other income. At the 25% corporate rate the same ₹1 crore profit flips at 26.70% withdrawal; at 30% the company loses at every withdrawal level, because the first layer alone is already too expensive to recover. Add ₹40 lakh of other personal income to a ₹30 lakh profit and the crossover moves up to 42%, because your personal marginal rate is now high enough that keeping money out of your hands has real value. Run your own numbers rather than borrowing anyone else's conclusion; the sign of the answer genuinely changes.
The LLP remuneration ceiling — the lever most owners never pull
The reason an LLP performs better than its flat 30% rate suggests is the working-partner remuneration deduction, and the reason many LLPs perform worse than they should is that their partners never use it properly. Remuneration paid to a working partner, if authorised by and in accordance with the LLP agreement, is deductible to the LLP — but only up to a ceiling computed on book profit. The ceiling is generous at the bottom and tapers: ₹3,00,000 or 90% of the first ₹6,00,000 of book profit, whichever is higher, plus 60% of the balance. On ₹30 lakh of book profit that gives a ceiling of ₹19,80,000; on ₹2 crore it gives ₹1,21,80,000.
What makes this valuable is the rate arbitrage. Every rupee of remuneration inside the ceiling is deducted at the LLP's flat 30% plus cess and picked up in the partner's hands at their slab rate. For a partner whose marginal slab is below 30% — which covers everyone with total income under roughly ₹24 lakh — that is a straight saving on every rupee moved. Even at the top slab it is broadly neutral rather than harmful, and the remaining share of profit stays exempt. Take the ceiling and the LLP on ₹2 crore of profit costs ₹63,37,704. Pay no remuneration at all and, on ₹50 lakh of profit, the LLP cost jumps from ₹11,53,200 to ₹15,90,000 — a self-inflicted ₹4,36,800 for leaving a box unticked.
Two conditions have to be met and both are commonly missed. The remuneration must be authorised by the LLP agreement and must be in accordance with its terms; a payment made on a partner's say-so, without the agreement providing for it, is not deductible however reasonable the amount. And it must be paid to a working partner — someone actually engaged in conducting the affairs of the business, not merely a capital contributor. Where an LLP has one active partner and one passive investor, only the active partner's remuneration qualifies, which caps the deduction well below the arithmetical ceiling.
Notice also what the ceiling does at small profits. On ₹10 lakh of profit the ceiling is ₹7,80,000, so ₹2,20,000 of profit is stranded at the LLP level and taxed at 30% plus cess, producing ₹68,640 of tax where a proprietor on the same ₹10 lakh pays nothing at all thanks to the Section 156 rebate. That is the mathematical reason an LLP is the wrong structure for a small business — not the filing burden, though that matters too, but the fact that a flat 30% entity rate has no rebate and no lower slabs to fall back on. The LLP only starts to make sense once profit is large enough that the partner would have been in the 30% bracket anyway.
What happens to profit left inside a company — and the exit tax you have not priced
When the calculator shows a company winning at low withdrawal, it is important to be precise about what has and has not happened. The profit retained in the company has borne corporate tax and nothing further. It has not escaped tax; it has deferred the second layer. The money is company money, not yours, and the second layer arrives whenever it eventually crosses into your hands — as dividend if you distribute it later, or as capital gain when you sell the shares or wind the company up.
That is what the exit-tax toggle is for. Switched on, the calculator adds long-term capital gains at 12.5% plus cess on the retained profit, on the basis that unlisted shares held for more than twenty-four months are taxed at that rate without indexation. On ₹30 lakh of profit fully retained, the company's cost rises from ₹8,15,040 to ₹11,06,885 once the exit is priced — a difference of ₹2,91,845, which is the deferred layer made visible. Leaving it switched off is the right assumption if the money is genuinely being reinvested and you have no exit in contemplation; switching it on is the right assumption if this is a business you intend to sell.
Deferral is nonetheless worth real money even when the tax eventually arrives, because the retained rupee works in the business in the meantime. Corporate tax at 25.168% leaves ₹74.83 of every ₹100 available to fund stock, equipment or hiring; extracting the same ₹100 through a company at full slab rates might leave ₹50 after both layers. If the business earns anything at all on reinvested capital, the compounding on that difference across a few years dwarfs the eventual capital gains bill. This is the honest case for incorporation, and it applies precisely to the businesses that are growing — which is why the structure question should be revisited as a business changes rather than settled once at the start.
One caution belongs alongside it. Getting at retained profit early, without declaring a dividend, is exactly the manoeuvre the deemed-dividend rules exist to catch: a loan or advance from a closely-held company to a substantial shareholder can be treated as a dividend in the shareholder's hands, taxed at slab rates, with no corresponding deduction anywhere. Owners who model a retention strategy and then quietly run personal expenses through the company get the worst of every world. If the plan is to retain, retain properly — and if you need the money, take it as a dividend or a justifiable salary and pay the tax on it.
Compliance cost — why it decides most real cases
The tax comparison is the part everyone models and, below a few tens of lakhs of profit, it is the part that matters least. The three structures cost very different amounts to run, and the differences are of the same order as the tax gaps they are competing with.
A proprietorship requires an income-tax return and, where the turnover and cash-receipt tests in Section 63 of the Income-tax Act, 2025 are met, a tax audit. Below those thresholds there is no statutory audit, no registrar filing, and no separate entity return. An LLP files an annual income-tax return and its own annual statements with the registrar, and needs an audit once turnover or partner contribution passes prescribed thresholds. A private company is the heaviest by a wide margin: a statutory audit is required irrespective of size or turnover, along with annual filings with the registrar, board meetings, general meetings, a formal minute book, statutory registers and director disclosures. The audit alone puts a floor under the cost that a small company cannot get below.
Put indicative figures on it — ₹15,000, ₹30,000 and ₹60,000 a year — and the effect on the ranking is immediate. On ₹30 lakh of profit at full withdrawal the proprietorship costs ₹5,14,200 and the LLP ₹5,52,080, a gap of ₹37,880 which is smaller than a single year of the most expensive structure's compliance bill. On ₹5 lakh of profit the entire tax on a proprietorship is nil and the whole ₹15,000 cost is fees. The calculator watches for this and flags it in two ways: when the structure that wins on tax alone is not the structure that wins once compliance is added, and when the winning margin is smaller than a year of compliance fees — in which case the tax answer is not a reason to restructure at all.
These defaults are indicative market figures and nothing more. Replace them with quotes you have actually been given, because they vary by city, by complexity and by whether an audit is in play, and because the calculator is only as honest as this input. If a professional has quoted you ₹1,20,000 to run a company and ₹20,000 to run a proprietorship, that ₹1,00,000 delta needs a tax saving of ₹1,00,000 a year to justify it — which on the numbers above means a profit well into the crores or a low withdrawal rate. Most small businesses are not there.
The factors that outrank tax — and how to make the decision
Structure is a ten-year decision made with one year's information, and the tax arithmetic is only one input. Four non-tax factors regularly outweigh it, and at small scale they nearly always do.
Limited liability is the first and the most important. A proprietor is personally liable for every business debt without limit — a supplier's claim, a lease, a customer's damages, a bank guarantee — and personal assets, including the family home, are exposed. An LLP and a company both ring-fence liability at the entity level. If your business carries genuine claim risk, holds inventory on credit, signs long leases or employs people, that protection is worth far more than the tax delta this calculator computes, and it is the reason the tax answer should never be the whole answer.
Access to capital is the second. Only a company can issue shares. If you will ever raise outside money — an angel, a fund, an ESOP pool for the team — the choice is effectively made for you, because no professional investor will subscribe to an LLP and none will fund a proprietorship at all. Banks lend more readily and on better terms to companies, large customers frequently require a company on their vendor panel, and the credibility premium is real even where it is unquantifiable. Owners who plan to raise within three years should incorporate now rather than convert later.
Reversibility is the third, and it cuts in a direction that surprises people. Converting a proprietorship into an LLP or a company later is routine and, if structured correctly, can be done without triggering a capital gains charge. Unwinding a company is slow, expensive and takes the better part of a year. That asymmetry argues for starting simple and incorporating when the numbers justify it, rather than incorporating on day one because it sounds more serious. Continuity is the fourth: a proprietorship ends with the proprietor, while an LLP and a company survive changes in ownership, which matters for succession, for bringing in a partner and for anything you intend to sell.
So use the output in the right order. Compute the tax and compliance gap with an honest withdrawal figure and your own fee quotes. If the winning gap is smaller than a year of compliance fees, ignore the tax answer entirely and decide on liability, capital and continuity. If the gap runs to several lakhs, it is worth acting on — but check the withdrawal flip first, because a company that wins at 30% extraction and loses at 100% is only the right answer if you can genuinely live on 30%. And re-run it when the business changes: the structure that was right at ₹10 lakh of profit is very often wrong at ₹2 crore, and the cost of noticing late is paid every single year until you do.
A note on scope. This calculator models personal tax under the new regime for a resident individual and reports the marginal cost of this profit on top of your other income. It models company extraction as dividend; for the salary route, which is deductible to the company and taxed once, see our salary-vs-dividend calculator. It does not model provident fund, professional tax, GST, brought-forward losses, multiple partners or shareholders, holding structures, or the deemed-dividend rules on shareholder loans. Where the numbers are large or a transaction is in contemplation, treat the output as the right question to bring to your advisor rather than the final answer.
Frequently asked questions
Which structure has the lowest tax — company, LLP or proprietorship?
There is no fixed answer, and that is the point of the calculator. It depends almost entirely on how much of the profit you actually withdraw. A proprietor and an LLP partner are taxed on the profit whether or not it leaves the business, so their cost is unaffected by withdrawal. A company is taxed again only on what is extracted. On ₹2 crore of profit a company costs 49.81% at full extraction and 30.29% at 30% extraction — the worst of the three and then the best, on identical profit.
Why is a proprietorship so cheap at small profits?
Because there is only one layer of tax and it is progressive. Business profit is simply your income, taxed at slab rates with the rebate under Section 156 making total income up to ₹12 lakh entirely tax-free. On ₹10 lakh of profit a proprietor pays nil tax, while an LLP on the same profit pays about ₹68,640 because its flat 30% rate has no rebate and no lower slabs, and a company pays corporate tax from the first rupee. Add the far lower compliance cost and a proprietorship is very hard to beat below roughly ₹25 lakh of profit.
Is a partner's share of LLP profit taxable in the partner's hands?
No. The LLP pays tax on its profit at a flat 30% with 12% surcharge above ₹1 crore and 4% cess, and the partner's share of that profit is exempt when it reaches the partner. That is the structural advantage of an LLP over a company, which is taxed a second time on distribution. Remuneration is different — remuneration paid to a working partner within the statutory ceiling is deducted by the LLP and is taxable in the partner's hands at slab rates.
How much remuneration can an LLP pay its partners?
Deductible working-partner remuneration is capped by a ceiling computed on book profit: ₹3,00,000 or 90% of the first ₹6,00,000 of book profit, whichever is higher, plus 60% of the balance. On ₹30 lakh of book profit that is ₹19,80,000. Two conditions matter — the remuneration must be authorised by and in accordance with the LLP agreement, and it must go to a genuinely working partner rather than a passive capital contributor. Not using the ceiling is expensive: on ₹50 lakh of profit, paying nothing costs about ₹4.37 lakh more than paying the maximum.
At what profit does incorporating start to make sense?
Ask instead at what withdrawal level, because that is the real variable. The calculator reports the crossover explicitly. On ₹2 crore of profit at the 22% concessional rate, a company wins below about 34% withdrawal and loses above it. On ₹1 crore at the 25% corporate rate the crossover is about 27%. At a 30% corporate rate the company can lose at every withdrawal level, because the first layer alone is too expensive to recover. If you need most of the profit to live on, incorporation rarely wins on tax.
Does profit left inside a company escape the second layer of tax?
No — it defers it. Retained profit has borne corporate tax and nothing more, but the second layer arrives whenever the money crosses into your hands, either as a dividend later or as capital gain when you sell the shares or wind up. The exit-tax toggle prices that at 12.5% plus cess on unlisted shares. Deferral is still genuinely valuable, because the retained rupee works in the business meanwhile — but taking the money out early as a shareholder loan can be treated as a deemed dividend and taxed at slab rates.
How much does each structure cost to run each year?
Indicatively ₹15,000 for a proprietorship, ₹30,000 for an LLP and ₹60,000 for a private company, though these vary widely by city and complexity and the calculator lets you replace them. The structural driver is that a private company needs a statutory audit irrespective of size, plus registrar filings, board and general meetings and statutory registers. An LLP audits only past prescribed turnover or contribution thresholds. A proprietor faces an audit only where the ordinary Section 63 turnover and cash-receipt tests are met.
When should I ignore the tax answer entirely?
Whenever the winning margin is smaller than a year of compliance fees, which at small profits is most of the time — the calculator flags it when that happens. Decide instead on limited liability, which a proprietor simply does not have and which matters enormously if the business carries claim risk or employs people; on access to capital, since only a company can issue shares to an investor or an ESOP pool; and on reversibility, since converting a proprietorship upward later is routine while unwinding a company is slow and expensive.
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