The Ministry of Corporate Affairs Notifies Revised Thresholds for Classification as a 'Small Company

The Ministry of Corporate Affairs ("MCA"), vide notification dated 1st December 2025 ("Amendment"), has amended the definition of "Small Company" under Section 2(85) of the Companies Act, 2013 (the "Act"), read with Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014. The Amendment enhances the financial thresholds for paid-up share capital and turnover, thereby broadening the category of companies eligible for reduced compliance requirements and various regulatory exemptions.

Revised Definition of "Small Company" Under Section 2(85)

Amended Definition

For the purposes of Section 2(85) of the Act, the paid-up share capital and turnover of a "Small Company" shall not exceed INR 10,00,00,000/- (Indian Rupees Ten Crore) and INR 1,00,00,00,000/- (Indian Rupees One Hundred Crore), respectively.

Previous Definition (Prior to the Amendment)

Before the Amendment, a "Small Company" was defined as a company, other than a public company (i) with paid-up share capital not exceeding INR 4,00,00,000/- (Indian Rupees Four Crore); and (ii) with turnover not exceeding INR 40,00,00,000/- (Indian Rupees Forty Crore) as per the immediately preceding financial year.

Effective Date

The Amendment comes into force from the date of its publication in the Official Gazette, i.e., 1st December 2025.

Impact of Amendment

The immediate statutory relaxations available to Small Companies include:

1. Board Meeting Frequency: Minimum requirement reduced to 2 (two) meetings per year, 1 (one) in each 6 (six) months with a gap of at least 90 (ninety) days.

2. Financial Statements: Exemption from preparing a Cash Flow Statement as part of the financial statements.

3. Annual Return: Eligibility to file an abridged Annual Return in Form MGT-7A. If no Company Secretary is appointed, it may be signed by a single Director.

4. Auditor Rotation: Exemption from mandatory audit rotation (maximum tenure of 5/10 years).

5. Reduced Penalties: Application of Section 446B, which caps penalties for small companies at one-half of the applicable amount.

6. Certification of Forms: Exemption from professional pre-certification for specified e-forms.

7. CARO Reporting Exemption: Small Companies are exempt from applicability of the Companies (Auditor's Report) Order (CARO), reducing the reporting burden on statutory auditors.

What Companies Need to Do Now

1. Review audited financials for FY 2024-25 to assess eligibility under the revised thresholds.

2. If qualifying as a Small Company: (i) Update statutory records, disclosures, letterheads, website, and MCA filings (AOC4, MGT-7/MGT-7A). (ii) Re-evaluate compliance calendars to identify relaxations applicable from FY 2025-26. (iii) Coordinate with statutory auditors and company secretaries for smooth implementation.

3. Confirm that the company does not fall within the statutory exclusions (as mentioned hereinbelow).

Exclusions

A company shall not qualify as a Small Company, even if it meets the financial thresholds, if it is:

1. A public company.

2. A holding or subsidiary company of any company (whether of a private, public, small, or large company).

3. A company registered under Section 8 (non-profit/charitable companies).

4. A company/body corporate governed under a special Act (i.e., an entity incorporated and regulated under a specific statute other than the Companies Act, 2013, such as SBI Act 1955, LIC Act 1956, RBI Act 1934 etc.).

5. Entities regulated under a special regulatory regime, such as SEBI registered Alternative Investment Funds (AIFs), which are generally structured as trusts or LLPs and therefore do not fall within the definition of a 'company' under Section 2(20) of the Act.

Practical Interpretive Issues for FY 2024-25 Filings

Since the amendment is effective 1st December 2025, and the due date for filing annual returns for FY 2024-25 stands extended to 31st December 2025, several practical questions arise:

1. Status Determination

Issue: Whether the status of a "Small Company" for the FY 2024-25 is to be determined strictly as of the financial year-end (31st March 2025) or if the beneficial classification applies to filings made after 1st December 2025.

Analysis: Section 2(85) expressly ties Small Company eligibility to the "immediately preceding financial year." The 1st December 2025 amendment is prospective and does not contain a retrospective applicability clause. Accordingly, FY 2024-25 filings must be made based on the pre-amendment limits.

Determination: The classification must be determined as on 31st March 2025; the revised thresholds cannot be applied to FY 2024-25.

2. Form Selection (MGT-7/MGT-7A)

Issue: Whether a company that was not a "Small Company" as on 31st March 2025 qualifies under the new thresholds and should file Form MGT-7A for FY 2024-25.

Analysis: Eligibility flows from the company's legal status during the financial year to which the return pertains. Since the company did not qualify as a Small Company under the earlier thresholds for FY 2024-25, the simplified filing format cannot be availed merely because the law changed before the due date of filing.

Determination: Filing must be undertaken in Form MGT-7; Form MGT-7A is not available for FY 2024-25.

3. Certification of Annual Return (MGT-8)

Issue: Whether MGT-8 certification continues to apply for FY 2024-25 if the company falls under the revised thresholds criteria.

Analysis: The obligation to obtain practicing company secretary certification is determined based on the classification during the financial year under review. Since FY 2024-25 closed prior to the amendment, and the company then fell outside the Small Company category, the certification requirement continues unchanged.

Determination: The requirement for MGT-8 certification remains applicable for FY 2024-25 as it was triggered under the old thresholds.

4. Auditor Rotation & Cash Flow

Issue: Whether exemptions relating to Auditor Rotation and preparation of the Cash Flow Statement apply to financial statements being filed now for FY 2024-25.

Analysis: Both requirements are attached to the financial year for which the statements are prepared. The Amendment does not reopen obligations for a past period. Thus, for FY 2024-25, the existing rotation norms and Cash Flow Statement requirement continue to operate.

Determination: These exemptions apply prospectively from FY 2025-26 onward and cannot be invoked for FY 2024-25.

Conclusion

The amendment to Section 2(85) significantly enlarges the scope of Small Companies and introduces meaningful compliance relaxations; however, its applicability is entirely prospective. Since the financial year 2024-25 concluded prior to the amendment's effective date of 1st December 2025, all compliances, filings, certifications, and statutory requirements for FY 2024-25 must continue to be determined strictly on the basis of the pre-amendment thresholds. The revised benefits include simplified annual return filing, exemption from auditor rotation, exemption from cash flow statements, and reduced penalties will be available only from FY 2025-26 onwards. Companies should therefore assess their classification afresh for the upcoming year while ensuring full compliance with the erstwhile framework for FY 2024-25.