A proprietorship can be tax-efficient for small business owners in India, especially when the total income is up to ₹12 lakhs, because it is taxed as individual income, not as a separate business entity. Here’s why this can be advantageous:

✅ 1. Personal Income Tax Slabs Apply

In a sole proprietorship:

The business income is treated as the individual’s income.

So, you benefit from the basic exemption limit (₹2.5L/₹3L/₹5L) and progressive slabs under the old or new regime.

Under the New Tax Regime from 2025-2026 Financial year, up to 12 lakhs, the Tax liability is Zero

➡️ Compare this to:

Private Limited Companies are taxed at 25–30% flat (plus surcharge and cess).

LLPs are taxed at a flat 30%, without any personal slab benefits.

✅ 2. No Double Taxation

In a company:

The company pays tax on its profits.

Then, when you withdraw money (e.g., as salary or dividend), you may pay tax again.

In a proprietorship:

There’s no legal distinction between the individual and the business, so you’re only taxed once.

✅ 3. Lower Compliance Burden

No need to file separate tax returns for the business.

Fewer regulatory filings and statutory audits (unless turnover crosses limits).

Easier to maintain books and manage operations.

But: There Are Trade-offs

No limited liability: your personal assets are at risk.

Harder to raise investment or expand.

Less credibility for large-scale operations.

Summary:

For someone earning up to ₹12 lakhs and not needing external funding or a formal structure, a sole proprietorship can be the most tax-efficient and simple option, especially under the New tax regime.

• 💰 ₹0 tax up to ₹12 lakh (FY 2025–26 – New Regime)

• 🧾 Minimal compliance (no ROC filing)

• ❌ Unlimited liability

• 🚫 Not suitable for external investors