Business tax vs Income tax
Business Tax vs Income Tax: Key Differences Explained
In this post, we will discuss the difference between Business Tax and Income Tax, their applicability, and how each one is calculated under the Income Tax Act.
Let’s look at these sections in detail:
What is Business Tax?
Business tax is the tax you pay on income earned from your business or professional work. It falls under income tax but has its own set of rules, deductions, and audit requirements.
Applicable To:
Business tax applies to the following:
- Sole proprietors
- Partnership firms
- LLPs
- Companies
- Professionals like doctors, lawyers, consultants
Taxability:
- Income from business is taxed under the head Profits and Gains from Business or Profession
Taxable income = Gross receipts minus business expenses - Some can also opt for presumptive taxation (like under Section 44AD, 44ADA or 44AE) if they meet the conditions
What is Income Tax?
Income tax is a direct tax collected on the total income earned by an individual, HUF (Hindu Undivided Family), firm, company or any other entity in a financial year.
Applicable To:
- Salaried people
- Professionals
- Business owners
- Freelancers
- Companies
Types of Income Covered:
As per the Income Tax Act, income is divided into 5 main heads:
- Salary income
- Income from house property
- Business or professional income
- Capital gains (like sale of property, shares, etc.)
- Other income (like interest, lottery winnings etc.)
Income tax is calculated based on slabs for individuals and flat rates for firms or companies. It is paid either once a year or in parts as advance tax.
Key Differences: Business Tax vs Income Tax
|
Point of Difference |
Business Tax |
Income Tax |
|
Who Pays |
Paid by companies, partnership firms, LLPs and other business units |
Paid by individuals, salaried people, professionals and HUFs |
|
Basis of Calculation |
Calculated on net profit after subtracting business expenses |
Calculated on total income like salary, rent, business or professional income, capital gains etc. after deductions |
|
Tax Rates |
Charged at fixed corporate rates like 25% or 30% plus surcharge and cess |
Charged as per income slabs 5%, 10%, 20%, 30% in old system and 5% to 30% in new system |
|
Deductions Allowed |
Expenses such as rent, salaries, depreciation, research and development |
Deductions like 80C, 80D, HRA, standard deduction and so on |
|
Compliance |
Needs books of accounts, audit if required, advance tax and filing of company return |
Needs filing of individual return, advance tax if tax payable is more than ₹10,000, and TDS if applicable |
|
Law Applicable |
Comes under Income Tax Act, 1961 with rules for businesses |
Comes under Income Tax Act, 1961 with rules for individuals and HUFs |
And that’s all about this post. If you have any questions or thoughts, please share them in the comments. We will reply to you soon.
