The Article highlights the impact of recent MCA notification G.S.R. 880(E) Dated: 1st December, 2025 regarding revising the limit for determining a Small Companies Under Section 2(85) of the Companies Act, 2013. A Big Win for India’s SMEs
Meaning: Ministry of Corporate Affairs has notified on December 1, 2025, the Companies (Specification of definition details) Amendment Rules, 2025, revising the financial criteria for determining a Small Company under Section 2(85) of the Companies Act, 2013.
Section 2(85): small company” means a company, other than a public company, —
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Revised Limit:
| Particulars | Before said notification | After said notification (effective from December 1, 2025) |
| Paid-Up Share Capital (as on date) AND | INR 4.00 Crore | INR 10.00 Crore |
| Turnover (in immediately preceding financial year) | INR 40.00 crore | INR 100.00 Crore |
Benefits:
There is no concept of ‘Big Companies’ under the Companies Act, 2013, however small companies with financial limits prescribed and few exemption / benefits are given to small companies under the Act.
| Relevant Section | Particulars | Benefit / Exemption |
| Sec. 2(40) | Definition of financial statement | Cash Flow Statement not mandatory. |
| Sec. 29
Rule 9A |
Issuance of securities only in demat form | Not mandatory. |
| Sec. 92(1) | Annual Return | (a) Only aggregate remuneration of directors to be disclosed.
(b) Only 1 director’s signature needed if no CS. (c) Abridged annual return -MGT-7A |
| Sec. 134(3A) | Board’s Report | Simplified format allowed -Abridged Board’s Report. |
| Sec. 139 | Appointment of auditors | Not mandatory Auditors’ rotation. |
| Sec. 141(1)(g) | Eligibility/disqualification of auditors | The limit of 20 company audits for a CA, excludes small companies. |
| Sec. 143(3)(i) & 143(11) | Auditor’s report / CARO | CARO and IFC reporting not applicable to small companies. |
| Sec. 173 | Board Meetings | Only 2 board meetings / year required instead 4 to others Pvt. Companies:
• One meeting in each half of calendar year. |
| Sec. 233 | Fast-track merger | Eligible for fast-track merger:
• Between two or more small companies; or |
| Sec. 446B | Lesser Penalties | 50% of normal penalty, subject to:
•Max ₹2,00,000 for company. • Max ₹1,00,000 for officer in default or any other person as the case may be. |
The government has relaxed the definition of small companies, enabling a larger number of entities to take advantage of reduced compliance requirements and a fast-track merger process and it’s a welcome step towards ‘ease of business doing’. However, there are few practical challenges and clarification required as on date.
1. MGT – 8 Vs MGT -7A: MGT-7A as Abridged annual return allowed for Small Companies, however MGT 8 is required for Companies having turnover more than 50 crores- this creates mismatch and required clarification from MCA.
2. CSR Reporting: Non applicability of CARO can be a relaxation, but small companies can be covered under section 135- CSR regulation, and there is no factual reporting by auditors for CSR. Also, few other CARO clauses are crucial for small companies. MCA or ICAI may come up with some sort of abridged form of CARO reporting for small companies.
3. Cash Flow Requirement: Companies with a size of 100 crore revenue without audited cash flow may raise practical challenge at the time of Bank loans or projected financial for Investors.
4. Mismatch among various definition and threshold for small companies: An entity operates in India having various regulatory and taxation compliance, where small companies named and define on various parameter, which create road block and challenges for compliances. Such as for applicability of Accounting Standards (I-GAAP), its Level-I / Level-II / Level-III entity, with different threshold. Further, Cost Audit exemption is there for Micro, Small, and Medium Enterprises (MSMEs), however small companies in regulatory sector with annual turnover exceeds INR 50 crore are not exempt. Also, under MSME Act definition and limit differ from Companies Act, 2013.
5. Already dematerialized shares: Small companies with previous threshold already dematerialized shares not have any option of rematerialize now, therefore carrying compliance burden and cost of same even though it is small company as per revised limit. MCA should give appropriate option for those small companies.
As we all celebrate the notification as a big win for SMEs in India, however more to be expected from lawmakers:
1. Compliance burden of various Labour laws: Small Companies should be given some relaxation in compliance of various labour laws, more specifically those provisions and laws, other than safety concern of employees.
2. Taxation compliance relaxation: A bunch of relaxation under Income Tax Act also warrant for Small Companies, more specifically for TDS compliances, TCS compliances, various form filing, lower deduction of withholding tax etc.
Q & A:
1. From when do the revised limits apply?
Notification is effective from December 1, 2025, All the companies meeting the updated criteria on or after this date will qualify as small companies for statutory and compliance purposes.
2. Statutory audit applicable on small company?
Yes. Small company status does not exempt from statutory audit till now.
3. Are penalties actually lower for small companies?
Yes. But defaults are still punishable. Small company status is not immunity from compliance.
4. If a company crosses INR 100 crore turnover in the middle of the year, does it immediately lose “small company” status?
No. Turnover to be checked for immediately preceding year. Status for the current year remains unchanged.
5. If a company falls below the thresholds of INR 100 crore turnover during the year, does it immediately become a small company?
No. Turnover to be checked for immediately preceding year. Status for the current year remains unchanged.
6. A company had one subsidiary earlier and sell it during the year, do it become a small company immediately?
No. Mid-year changes (sale of subsidiary / adding subsidiary) do not alter status instantly.
7. Whether professional certification not required for filings of various form in case of a small company?
Yes, The following e-forms filed by companies, other than one person companies and small companies, under sub-rule (1) of rule 9, shall be pre-certified by the Chartered Accountant or the Company Secretary or as the case may be the Cost Accountant, in whole-time practice, namely:‑ INC-21, INC-22, INC-28, PAS-3, SH-7, CI-IG-1, CUG-4, CIG-9, MGT-14, I)IR-6, DIR-12, MR-1, MR-2, MSC-1, MSC-3, MSC-4, GNI,-3, ADT-1, NDI-1-1, NDH-2, NDH-3;
8. Can the status change every year?
Yes. A company can become:
- small;
- cease to be small;
- re-qualify in later years,
(MCA Notification dated December 1, 2025)
D:\Cloud\OneDrive\Desktop\MCA notification.pdf
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