Partnership Firm vs LLP vs Company

This page pulls together what’s covered in depth on the three dedicated pages linked in the sidebar, side by side, so the comparison itself is the starting point rather than something you have to assemble by reading all three.

Side by side

	Partnership Firm	LLP	Company
Own tax rate	Flat 30%	Flat 30%	30%/25% regular, or 22% (115BAA), or 15% (115BAB) if eligible
Slab benefit or basic exemption	None	None	Not applicable, flat rates only
Minimum alternate tax exposure	None	AMT (18.5%) if claiming specified deductions, no income floor unlike individuals	MAT (15% of book profit) on the regular regime; none on 115BAA/115BAB
How profit reaches the owner	Remuneration and interest, taxed as the partner’s business income; profit share exempt under Section 10(2A)	Same structure as a partnership firm, remuneration/interest taxed, profit share exempt	Dividend, taxed in the shareholder’s hands at slab rate, separate from the company’s own tax
Legal identity	Not a separate legal person in the same sense as a company; partners carry personal liability	Separate legal entity, partners’ liability limited to their contribution	Separate legal entity, shareholders’ liability limited to their shareholding
Governing compliance	Partnership deed, no statutory audit trigger of its own beyond the Income Tax Act’s thresholds	LLP Act, 2008, separate statutory audit trigger (turnover above 40 lakh rupees or capital above 25 lakh rupees)	Companies Act, 2013, statutory audit required regardless of turnover
ITR Form	ITR-5	ITR-5	ITR-6 (ITR-7 if claiming Section 11 exemption)

Why a partnership firm and an LLP are taxed almost identically

The Income Tax Act’s definition of “firm” for Section 40(b) purposes includes LLPs, so the same flat 30% rate, the same partner remuneration limits, and the same profit-share exemption apply to both. The genuine difference is legal, not tax, an LLP is a separate legal entity with limited liability for its partners, a partnership firm generally isn’t, and that difference is exactly why an LLP carries the one thing a plain partnership firm never has to think about: Alternate Minimum Tax, if it claims certain incentive deductions.

Where a company genuinely pulls ahead on rate

A profitable company opting for Section 115BAA pays 22%, well under the flat 30% a partnership firm or LLP pays on every rupee. An eligible new manufacturer under 115BAB, where currently confirmed eligible, pays just 15%. But this comparison stops at the company’s own tax bill, whatever reaches the shareholder afterward as a dividend is taxed again, separately, at the shareholder’s slab rate, the same two-layer structure a partnership firm’s remuneration payments follow, just with a different name and a different rate.

A genuinely useful comparison point: a partnership firm’s or LLP’s profit share reaching the partner is entirely exempt under Section 10(2A), while a company’s dividend reaching the shareholder is fully taxable at slab rate. A low headline company tax rate doesn’t automatically mean less tax overall once the money actually reaches the owner, the two structures move profit to the individual through fundamentally different routes, and comparing only the entity-level rate misses that.

Compliance weight, roughly ordered lightest to heaviest

A partnership firm has the lightest compliance load, a signed deed and the ordinary Income Tax Act obligations, no separate statutory audit regime of its own. An LLP adds the LLP Act’s own filings and its own audit trigger, on top of everything a partnership firm already has to do. A company sits at the top: mandatory statutory audit under the Companies Act regardless of turnover, on top of the Income Tax Act’s own Section 44AB audit threshold, board and shareholder governance requirements, and materially more ongoing filings with the Registrar of Companies. Converting from a company to an LLP later, to shed some of that weight, is possible but only tax-neutral if strict turnover and asset conditions hold, covered in LLP Taxation.