Figures for tax year 2026-27, checked on 15 October 2026. Have your CA confirm before you file.
If you freelance under your own name and PAN, you are already a sole proprietor. Nobody registers that; it is the default. The question of an OPC or LLP usually comes up when a client asks for a "company" or your income passes a number that makes you nervous. For most freelancers the honest answer is to stay as you are. Here is how to tell when that stops being true.
How each one works
A sole proprietorship is you. Your business income goes in your own return, taxed at your slab rates, and you are personally liable for its debts. You can use the presumptive scheme (section 58 of the Income-tax Act, 2025, which replaced 44ADA) and be taxed on 50% of receipts, with a tax audit only if receipts cross ₹50 lakh and you are not on that scheme.
A one person company (OPC) is a private limited company with a single shareholder. It is a separate legal person: it signs contracts, holds the bank account and pays its own tax. Your liability is limited to what you put in. You are paid a salary, which the company deducts and you pay tax on, and you can take dividends, which are taxed again at your slab rate.
A limited liability partnership (LLP) needs at least two partners. Like a company, it is a separate legal person with limited liability. It pays tax on its profit, and a partner's share of that profit is not taxed again. Salary and interest paid to working partners are deductible for the LLP within limits and taxed in the partner's hands.
Since 1 April 2021, an OPC no longer has to convert to a private company when paid-up capital passes ₹50 lakh or turnover passes ₹2 crore. Indian citizens living abroad can now form one, and it can convert whenever it likes. Older guides still say otherwise.
Side by side
| Sole proprietorship | OPC | LLP |
|---|---|---|---|
Who | You alone | One shareholder, plus a nominee | Two or more partners |
Liability | Unlimited, personal | Limited to capital | Limited to contribution |
Income tax | Your slab rates (nil to 30%) plus cess | 25% plus cess for a smaller company, or the 22% option (about 25.17% with surcharge and cess), then tax on dividends | 30% plus cess (surcharge above ₹1 crore); partners' profit share not taxed again |
Presumptive scheme | Yes | No | No |
Statutory audit | No; tax audit only above ₹50 lakh without the presumptive scheme | Every year, any size | Once turnover or contribution crosses the limits in the LLP Rules |
Annual filings | Your ITR | ITR, financial statements and annual return with the Registrar, board meetings | ITR, annual return and statement of accounts with the Registrar |
Setting up | Nothing to register | Incorporation with the Ministry of Corporate Affairs | Incorporation and an LLP agreement |
Closing down | Stop working | Formal strike-off | Formal strike-off |
Who should stay a sole proprietor
If your receipts are under ₹50 lakh, or under ₹75 lakh with almost nothing in cash, and you work alone, stay put. The numbers are hard to beat.
Take ₹60 lakh of receipts, all by bank. As a sole proprietor on the presumptive scheme you are taxed on ₹30 lakh. Under the new regime that is ₹3,00,000 on the first ₹24 lakh and ₹1,80,000 on the next ₹6 lakh, plus 4% cess: ₹4,99,200, about 8.3% of what you billed. An OPC or LLP has to tax its real profit instead, and pays a CA for audits and Registrar filings every year whether it earns anything or not.
You also keep flexibility. A sole proprietor can still register for GST (GST registration for freelancers), get Udyam registration for MSME payment protection (Udyam registration), and open a current account in a trade name. Most clients who ask for "a company" are satisfied with a GSTIN, a proper invoice and a business bank account.
When an LLP or company makes sense
- You are going into business with another freelancer and want the split, decision rights and exit written down. An LLP is the usual answer.
- You are hiring staff and want to keep profits in the business to grow it. A smaller company pays 26% including cess on profit up to ₹1 crore, against 31.2% for you personally on income between ₹24 lakh and ₹50 lakh.
- Your receipts are well above ₹75 lakh with real expenses, so the presumptive scheme no longer applies and you need audited books anyway.
- Your work carries real liability, such as software that runs a client's payments, and you want claims to stop at the business.
- You plan to raise money or give equity to someone. Investors fund companies, not proprietors or LLPs.
- An enterprise client's vendor process only onboards registered entities. Ask first; many accept proprietors with a GSTIN.
Do not switch only to "look bigger". The extra cost is real: an annual audit, Registrar filings with penalties for missing them, and a CA who knows company law. When to hire a CA has typical fees.
Whatever you choose, keep business money in its own account from day one. Separating personal and business money shows how. For the tax side of staying a proprietor, start with Income tax for freelancers.
Common questions
Is a sole proprietorship better than an LLP for a freelancer?
For most freelancers, yes. A sole proprietor can use the presumptive scheme and be taxed on 50% of receipts up to ₹50 lakh, or ₹75 lakh if almost everything comes in by bank. An LLP cannot use it, pays 30% plus cess on its profit, and must file annual returns with the Registrar, plus a statutory audit once it crosses the size limits in the LLP Rules. An LLP starts to make sense when you take on a partner.
Can an LLP use 44ADA?
No. The presumptive scheme for professionals (section 58 of the Income-tax Act, 2025, which replaced 44ADA) is open to resident individuals and partnership firms, and the Act expressly excludes limited liability partnerships. An LLP is taxed on its actual profit from its books, and gets a tax audit once professional receipts cross ₹50 lakh.
Does an OPC have to convert to a private company after ₹2 crore turnover?
No. That rule was removed from 1 April 2021. Earlier, a one person company had to convert once paid-up capital passed ₹50 lakh or average turnover passed ₹2 crore. The 2021 amendment dropped both limits, let Indian citizens living abroad form an OPC, and allowed conversion to a private or public company at any time.
Does a freelancer need to register a business?
Not to start. A sole proprietorship needs no separate registration; you work under your own PAN. You may still need GST registration once turnover crosses the threshold, a shop and establishment licence under your state's rules, and a current account if your bank asks for one. Udyam registration is optional but gives you MSME payment protections.
