Income tax slabs for sole proprietorships and professionals

The income tax slabs under the old income tax regime for sole proprietorship businesses and professionals are same as salaried class. However, individuals running proprietorship businesses or offering professional services (such as lawyer, doctor etc.) are eligible for many deductions that salaried individuals are not. Similarly, there are certain deductions that can be claimed only by salaried employees.

Old income tax regime slabs for proprietorship business, professionals below 60 years

Total income range (Rs)

Income tax rate (excluding surcharge and cess)

Total income range (Rs)
Income tax rate (excluding surcharge and cess)
0 to 2,50,000
NIL
2,50,001 to 5,00,000
5%
5,00,001 to 10,00,000
20%
10,00,001 and above
30%

Cess at 4% will be added to the income tax amount. Surcharge will be applicable if total income exceeds Rs 50 lakh.

Old income tax regime slabs for senior citizens who are sole proprietors or are professionals

Total income range (Rs)
Income tax rate (excluding surcharge and cess)
0 to 3,00,000
NIL
3,00,001 to 5,00,000
5%
5,00,001 to 10,00,000
20%
10,00,001 and above
30%

Cess at 4% will be added to the income tax amount. Surcharge will be applicable if total income exceeds Rs 50 lakh.

Old income tax regime slabs for super senior citizens who are sole proprietors or are professionals

Total income range (Rs)
Income tax rate (excluding surcharge and cess)
0 to 5,00,000
NIL
5,00,001 to 10,00,000
20%
10,00,001 and above
30%

Cess at 4% will be added to the income tax amount. Surcharge will be applicable if total income exceeds Rs 50 lakh.

New income tax regime slabs for sole proprietorships and professionals

An individual running a sole proprietorship business or working as a professional is also eligible to opt for new income tax regime. However, they will not be able to claim specified deductions and tax 4 specified under the law. The tax slabs, rates under new income tax regime are the same for all proprietorships or professionals irrespective of age unlike those under the old income tax regime.

Income tax slabs applicable under the new income tax regime

Total income range (Rs)
Income tax rate (excluding surcharge and cess)
0 to 2,50,000
NIL
2,50,001 to 5,00,000
5%
5,00,001 to 7,50,000
10%
7,50,001 to 10,00,000
15%
10,00,001 to 12,50,000
20%
12,50,001 to 15,00,000
25%
15,00,001 and above
30%

Cess at 4% will be added to the income tax amount. Surcharge will be applicable if total income exceeds Rs 50 lakh.

Income tax slabs for partnership firms
there is no slab rate for partnership firms (including limited liability partnerships), and they are charged at a flat rate. “For FY 2022-23, incomes earned by these firms are taxed at 30%. Further, surcharge at the rate of 12% is applicable if total income exceeds Rs 1 crore. Further, health and education cess at the rate of 4% is levied on the income tax amount,” says the CEO of Tax2win.

Income tax slab for domestic companies
The income tax slabs mentioned in the table below are applicable for domestic companies that are registered under the Companies Act, 2013.

Income tax slab for domestic companies for FY 2022-23

Condition
Income tax rate (excluding surcharge and cess)
If turnover or gross receipt in FY2020-21 exceeds Rs 400 crore
30%
If turnover or gross receipt in FY 2020-21 does not exceed Rs 400 crore
25%
If opted for section 115BA
25%
If opted for section 115BAA
22%
If opted for section 115BAB
15%
Any other domestic company
30%

Cess at 4% will be added to the income tax amount. Gross receipt, turnover and total sales are the same thing.

Section 115BA of the Income-tax Act is applicable on domestic manufacturing companies that were established and registered on or after March 1, 2016. Once a company opts to pay tax under Section 115BA, it cannot change the calculation process unless it opts for Section 115BAA for computing the income tax liability.

Section 115BAA offers relief to certain domestic companies wanting to lower their tax burden applicable under Section 115BA. Do note that if a company opts to pay under Section 115BAA, it will have to forgo certain deductions and other benefits as specified under the law.

Section 115BAB offers a lower income tax rate to promote new manufacturing start-ups. A company can opt to pay income tax under this section if it satisfies certain conditions. Some of these conditions are:
a) The company was set up and registered on or after October 1, 2019, and has started manufacturing or production on or before March 31, 2024
b) Plant and machinery used for manufacturing was not previously used; it must be new

Surcharge applicable on companies

Condition
Surcharge rate
If net taxable income exceeds Rs 1 crore but does not exceed Rs 10 crore
7%
If net taxable income exceeds Rs 10 crore
12%
If company opts for taxability under Section 115BAA or Section 115BAB
10%

Presumptive income tax scheme
It is important for proprietorship businesses and professionals to remember that they have to maintain meticulous books of accounts. Under the Income-tax Act, a business (sole proprietorship, partnership firm, company) or a professional is required to maintain a profit and loss statement, balance sheet and other books as applicable.

However, if a taxpayer does not want to maintain the books of accounts, the act provides an alternative way of taxation. But this is only for certain proprietorships businesses and professionals which meet specified conditions.

Soni says, “The Income-tax Act provides an option to professionals, sole proprietors and partnership firms an option of presumptive scheme under Section 44AD or Section 44ADA, as applicable, for the purpose of calculation of income tax.”

Section 44AD is available for sole proprietorship businesses whereas Section 44ADA is available to professionals such as doctors and lawyers.

“If an eligible taxpayer opts for the presumptive income tax scheme, then they are liable to declare income as 8% (6% in case of digital transactions) of gross turnover under 44AD or 50% of total sales as income under 44ADA. The income tax rate under the presumptive income scheme is charged at the normal slab rate mentioned above in the table above for sole proprietorship business and professionals. Once a taxpayer has opted for presumptive scheme taxation, they will have to follow the scheme for 5 years. In other words, they cannot switch between presumptive taxation and normal income tax slabs every financial year,” he adds.