The business income tax slab you face depends on the form of the business: a sole proprietor pays the same slab rates as any individual, a partnership firm or LLP pays a flat 30%, and a domestic company pays 25% or 30%, or 22% if it opts for section 115BAA. Surcharge and 4% cess come on top.
So the same ₹50 lakh profit can be taxed very differently as a proprietorship, a firm or a company. Below are the rates for FY 2025-26 (AY 2026-27) under the 1961 Act, worked figures for each structure, and the company changes that took effect when the Income-tax Act, 2025 began with tax year 2026-27.
Quick facts
Proprietor
Individual slabs, either regimeFirm or LLP
30%; 12% surcharge above ₹1 croreCompany, turnover up to ₹400 crore
25%Other domestic company
30%Section 115BAA
22% plus 10% surcharge (25.168% with cess)MAT
15% of book profit in FY 2025-26Cess
4% on all
Business income tax slab by type of taxpayer, FY 2025-26
| Taxpayer | Base rate | Surcharge |
|---|---|---|
| Sole proprietor (individual) | Slab rates of the chosen regime | As for individuals, from ₹50 lakh |
| Partnership firm or LLP | 30% | 12% if income is above ₹1 crore |
| Domestic company, turnover up to ₹400 crore in FY 2023-24 | 25% | 7% above ₹1 crore; 12% above ₹10 crore |
| Other domestic company | 30% | 7% above ₹1 crore; 12% above ₹10 crore |
| Domestic company under 115BAA | 22% | 10% at any income |
| New manufacturing company under 115BAB | 15% | 10% at any income |
The surcharge guide explains marginal relief at each threshold. A firm or company gets no basic exemption: tax starts from the first rupee of profit.
Income tax slab for business individuals
A shop owner, trader or consultant running a proprietorship adds business profit to any other income and pays the normal slabs. In the new regime that means nil up to ₹4 lakh and 30% only above ₹24 lakh, and a resident still gets the rebate up to ₹12 lakh. The old regime is open too, but someone with business income needs Form 10-IEA, filed in time, to step out of the new regime, and gets just one chance to come back.
Small businesses can declare profit on a presumptive basis: 8% of turnover (6% for digital receipts) under section 44AD for turnover up to ₹2 crore, or ₹3 crore if no more than 5% of receipts are in cash. Professionals can use 50% of receipts under 44ADA.
Section 115BAA and section 115BAB of the Income Tax Act
| Point | 115BAA | 115BAB |
|---|---|---|
| Who can opt | Any domestic company | New manufacturing company incorporated on or after 1 October of FY 2019-20 that began production by the end of FY 2023-24 |
| Base rate | 22% | 15% |
| Effective rate with surcharge and cess | 25.168% | 17.16% |
| MAT | Does not apply | Does not apply |
| Give up | Most incentives and special deductions | Most incentives and special deductions |
Once chosen, the 115BAA option cannot be withdrawn for later years. Because the 115BAB production deadline has passed, new companies today can only look at 115BAA or the normal rates.
Worked example: ₹2 crore of company profit
A private company with turnover of ₹50 crore earns taxable profit of ₹2,00,00,000 in FY 2025-26.
- Normal rate of 25%: tax ₹50,00,000; surcharge at 7% ₹3,50,000; cess at 4% on ₹53,50,000 is ₹2,14,000. Total ₹55,64,000.
- Under 115BAA: tax at 22% ₹44,00,000; surcharge at 10% ₹4,40,000; cess on ₹48,40,000 is ₹1,93,600. Total ₹50,33,600.
The 115BAA route saves ₹5,30,400 here, before counting any incentives the company would lose.
A firm with ₹80 lakh profit. Tax at 30%: ₹24,00,000. No surcharge applies, since income is below ₹1 crore. Cess ₹96,000. Total ₹24,96,000.
Partnership firm tax slab and partner payments
There is no slab for a firm: it pays 30% on the whole profit. Interest on partners' capital (up to 12% a year) and salary to working partners within the limits of section 40(b) reduce the firm's profit. The partner then pays tax on those receipts at their own slab rates. From FY 2025-26, a firm must deduct TDS at 10% under section 194T when such payments to a partner exceed ₹20,000 in the year; see 194T.
Company tax in tax year 2026-27
| Item | FY 2025-26 (1961 Act) | Tax year 2026-27 (2025 Act) |
|---|---|---|
| Base company rates | 25%, 30%, 22% option | Carried over |
| MAT rate | 15% | 14%, as a final tax with no new MAT credit |
| Firm and LLP rate | 30% | 30% |
The Union Budget for FY 2026-27 cut MAT to 14% and stopped new MAT credit from tax year 2026-27, while companies moving to the 22% regime can still use credit built up to 31 March of FY 2025-26 within limits. Check the Finance Act, 2026 text or a chartered accountant before planning around these changes.
Business tax mistakes and fixes
| Mistake | Fix |
|---|---|
| Treating a firm as eligible for the basic exemption | A firm pays 30% from the first rupee |
| Claiming 80C deductions in a company return | Chapter VI-A personal deductions are for individuals and HUFs |
| Opting for 115BAA without counting lost incentives | Compare both routes over several years |
| Paying advance tax late | Companies and firms pay in four instalments; see advance tax due dates |
Rates and options for businesses are summarised here in general terms only. Your structure and the latest Finance Act decide your actual tax, so take advice from a chartered accountant and check official sources before acting.
Sources we checked
- Finance Act, 2025, First Schedule
- Income-tax Act, 1961, sections 115BAA and 115BAB
- Income-tax Act, 1961, section 115JB
- Income-tax Act, 1961, section 40(b)
Frequently asked questions
What is section 115BAA of the Income Tax Act?
It lets a domestic company pay tax at 22% plus 10% surcharge and 4% cess, an effective 25.168%, if it gives up most incentives. MAT does not apply to such a company.
What is section 115BAB of the Income Tax Act?
It offered a 15% rate to new manufacturing companies set up from 1 October of FY 2019-20 that started production by the end of FY 2023-24. Companies that qualified keep it; new ones cannot enter it.
What is the tax on business income in India for a proprietor?
A proprietor pays the individual slab rates. In the new regime that is nil up to ₹4 lakh, rising to 30% above ₹24 lakh, with no tax up to ₹12 lakh for a resident after the rebate.
What is the corporate tax slab for a small company?
For AY 2026-27, a domestic company whose turnover in FY 2023-24 was up to ₹400 crore pays 25%, plus surcharge and cess. It can choose 22% under 115BAA instead.