MCA Raises Small Company Limits: A Move with Long-Term Benefits

MCA

MCA Raises Small Company Limits: A Move with Long-Term Benefits

MCA

The Ministry of Corporate Affairs (MCA) has announced a landmark change that significantly expands the scope of small companies in India. Through Notification G.S.R. 880(E) dated 1 December 2025, the MCA has revised the financial thresholds under Section 2(85) of the Companies Act, 2013, enabling a much larger pool of companies—especially SMEs—to benefit from reduced compliance requirements and simplified regulatory expectations.

This move is being celebrated as a major win for India’s growing SME ecosystem and a strong step toward enhancing the country’s “Ease of Doing Business.”

What Is a Small Company? — Understanding Section 2(85)

A “small company” under Section 2(85) refers to a company (other than a public company) that meets both the following criteria:

  1. Paid-up Share Capital:
    Does not exceed ₹50 lakh (extendable up to ₹10 crore).

  2. Turnover:
    Does not exceed ₹2 crore (extendable up to ₹100 crore) based on the preceding financial year.

Exclusions: The definition does not apply to:

  • Holding or subsidiary companies

  • Section 8 companies

  • Any company/body corporate governed by a Special Act

MCA

Revised Financial Thresholds (Effective 1 December 2025)

MCA has now notified enhanced limits under the Companies (Specification of Definitions Details) Amendment Rules, 2025.

ParticularsEarlier LimitRevised Limit (w.e.f. 1 Dec 2025)
Paid-Up Share Capital₹4 crore₹10 crore
Turnover (preceding FY)₹40 crore₹100 crore

This enhanced definition dramatically expands the number of private companies eligible for the “small company” status and the benefits that come with it.

Key Benefits & Relaxations Available to Small Companies

While the Companies Act does not define “big companies,” it offers multiple compliances relaxations to entities classified as small companies:

1. Financial Statements – Sec 2(40)

  • Cash Flow Statement not mandatory.

2. Dematerialisation – Rule 9A (Sec 29)

  • Not required to issue securities in demat form.

3. Annual Return – Sec 92(1)

  • Abridged Annual Return (Form MGT-7A).

  • Only aggregate remuneration of directors required.

  • Only one director signature required if the company has no CS.

4. Board’s Report – Sec 134(3A)

  • Simplified Abridged Board’s Report allowed.

5. Auditor Rotation – Sec 139

  • Mandatory auditor rotation not applicable.

6. Audit Limits – Sec 141(1)(g)

  • Audit limit of 20 companies per CA excludes small companies.

7. Auditor’s Report – Sec 143

  • CARO not applicable.

  • IFC (Internal Financial Controls) reporting not required.

8. Board Meetings – Sec 173

  • Only 2 meetings per year.

  • Private companies:

    • One meeting per half-year

    • Minimum 90-day gap

9. Fast-Track Merger – Sec 233

Eligible for fast-track mergers:

  • Between two or more small companies

  • Between startups and small companies

10. Lesser Penalties – Sec 446B

50% reduced penalties

    • Max: ₹2,00,000 for company

    • Max: ₹1,00,000 for officers

Practical Challenges & Clarifications Still Needed

While the notification is welcomed, several operational gaps need MCA/ICAI clarification:

1. MGT-7A vs MGT-8 Mismatch

Small companies can file MGT-7A, but if turnover exceeds ₹50 crore, MGT-8 certification is required—leading to contradiction.

2. CSR Reporting Challenges

Small companies may fall under CSR applicability (Sec 135), but CARO reporting is exempt.
An abridged CARO format may be required for consistency.

3. Cash Flow Statement Concerns

Companies with ₹100 crore turnover but no cash flow statement may face issues with:

  • Bank loan processing

  • Investor due diligence

  • Projections and valuations

4. Overlapping Definitions Across Laws

Different regulators define “small entity” differently:

  • Accounting Standards Level I/II/III

  • MSMED Act

  • Cost Audit applicability
    This creates compliance confusion.

5. Previously Dematerialised Shares

Companies that already dematerialised securities under old limits cannot re-materialise.
MCA may need to allow:

  • Optional re-materialisation

  • Reduced annual demat compliance burden

What More Can Regulators Improve? — Way Forward

1. Labour Law Ease

Small companies should get simplified labour law compliance for non-safety related filings.

2. Relaxation Under Income Tax Act

Scope for further ease:

  • Simpler TDS/TCS rules

  • Reduced filing burden

  • Auto-approval for lower TDS certificates

  • Simplified withholding obligations

Read More: How to Declare Foreign Income and Overseas Assets in Your Income Tax Return

Conclusion

The revision in thresholds marks a major policy initiative to support India’s growing SME sector. With relaxed compliance, simplified reporting, and eligibility for fast-track mergers, many private companies will now operate with reduced administrative burden.

However, several practical challenges—especially around CSR, MGT-7A vs MGT-8, dematerialisation, and cross-law thresholds—need timely clarification from MCA and ICAI to ensure smooth implementation.

Related Post

image

ITR-1 vs ITR-2 vs ITR-4 for AY 2026-27: How to Choose the Right Income Tax Return Form

ITR-1 vs ITR-2 vs ITR-4 for AY 2026-27: How to Choose the Right Income Tax Return Form Filing your Income Tax Return (ITR) begins with one critical decision—selecting the correct…
Read More
image

Who Qualifies as a Relative Under the Income-tax Act, 1961?

Who Qualifies as a Relative Under the Income-tax Act, 1961? The term "relative" may appear straightforward, but under the Income-tax Act, 1961, it does not have a single universal definition.…
Read More
image

GST at 9: Nine Years of India’s Biggest Tax Reform – Achievements, Challenges & The Road Ahead

GST @ 9: Nine Years of Transformation, Challenges, and the Future of India's Indirect Tax System From "One Nation, One Tax" to AI-driven tax administration, GST has transformed India's indirect…
Read More

Book A One To One Consultation Now
For FREE

How can we help? *

Roc Annual Compliances

Roc Annual Compliances

All about ROC Annual Return & Forms MGT-7, MGT-8 and AOC-4
Annual Return

Annual returns must be filed with the Ministry of Corporate Affairs (MCA) / Registrar of Companies (ROC) by every company incorporated under the Companies Act 1956 / 2013. Every registered company, whether or not it does business, is required to file these annual reports.

Every company registered under the Companies Act, whether it is a small, one-person business, a private limited company, or a public limited company, is required to file Annual Returns with the Registrar of Companies once a year to keep themselves informed about the company’s operations and management. The essential information about the company, its shareholders, directors, and so on as of the last day of the financial year, March 31st, is contained in the Annual Return.

Section 92 of the Companies Act, 2013 and Rule 11 of the Companies (Management and Administration) Rules, 2014 govern annual returns. Compliance with the Companies Act 1956 / 2013 is required for companies registered in India.

The corporation must comply with the Annual Return compliance requirement regardless of its entire turnover or capital size. On a day-by-day basis, late or non-filing of the ROC Annual Return attracts high interest, penalties, and a late charge.

Read Similar Posts…

[pt_view id=”baa39696xe”]

Annual Return – Overview
Annual Return (Form MGT-7)

Annual Return under the Companies Act is a yearly Return containing the general particulars of the company at the end of the financial year, such as details of its registered office, business activities, particulars of its holding, subsidiary companies, shares, debentures and other securities and shareholding pattern, members and debenture-holders, promoters, directors, key managerial personnel, and changes therein, members and debenture-holders, promoters, directors, key managerial personnel, meetings of members, and compliances, disclosures etc.

What is the purpose of the MGT-7 e-Form?

Every corporation must prepare an MGT-7 form giving the details as of the end of the fiscal year. These specifics include the following:-

  • The registered office, primary business activities, and information about the company’s holding, subsidiary, and affiliate firms;
  • The company’s shares, debentures, other securities, and shareholding pattern;
  • The company’s indebtedness;
    Members and debenture holders, as well as any changes that have occurred since the preceding financial year’s end;
  • The promoters, directors, and key managerial people, as well as any changes to them since the previous financial year’s end;
  • Meetings of members or a class of members, the Board of Directors, and its different committees, as well as attendance information;
  • Penalty or punishment imposed on the company, its directors or officers, including details of compounding of offences and appeals made against such penalty or punishment;
  • Remuneration of directors and key managerial personnel;
  • Penalty or punishment imposed on the company, its directors or officers, including details of compounding of offences and appeals made against such penalty or punishment;
  • The matters relevant to certification of compliances and disclosures as may be necessary;
  • Its Shareholding Pattern; and
  • Any other matters as may be required in the form.
  • What are the required attachments to submit this form?
  • This e-form can be completed by uploading scanned copies of documents to the attachments section. This is the last section of the form.
  • List of shareholders, debenture holders, approval
  • letter for AGM extension, copy of MGT-8, and
  • optional attachment(s), if any, are all mandatory attachments.
MGT – 7A: An Abbreviated Annual Return

By revising the requirements of the Companies (Management and Administration) Rules, 2014, the Central Government has prescribed a shortened form of annual return for “and Small Company,” which will take effect on March 5, 2021. This form is for OPC and small enterprises’ Annual Returns for the fiscal years 2020-21 and onwards.

One Person Company (OPC): According to Section 2(62) of the Companies Act, 2013, a “One Person Company” is a corporation with only one member.

Small Company: A Public Company is not regarded a ‘Small Company’ under Section 2(85) of the Companies Act 2013.

A corporation that is not a public company is deemed a ‘Small Company’ if it meets both of the following criteria:

(a) The company’s paid-up share capital does not exceed Rs. 2 crores or such greater amount as may be prescribed, but not more than Rs. 10 crores;

(b) Turnover for the immediately preceding financial year, as determined by the P&L Account, does not exceed Rs. 20 crores or such greater amount as may be prescribed, but not more than Rs. 100 crores.

Haven’t received an Income tax refund yet? Follow these Steps

Form MGT-8: Certificate from a Practicing Company Secretary

According to the Companies Act 2013, Section 92(2) read with Rule 11(2) of the Companies (Management and Administration) Rules, 2014, Form MGT-8 is a certification granted on a company’s annual report by a practising company secretary. A listed business or a firm with a paid-up share capital of 10 crore rupees or a turnover of 50 crore rupees or more must attach MGT 8, which must be validated by a Company Secretary in Practice (PCS) and given in stipulated Form No. MGT-8. If MGT 8 is released after October 1, 2020, a practising Company Secretary must generate a UDIN (PCS).

Timeline for Filing a Company’s Annual Return

1. Annual Return (MGT-7A) Due Date: Although the OPC is not required to convene an annual meeting, the due date for filing Form MGT 7A is 60 days after the end of the financial year. From FY 2020-21 onwards, One Person Companies (OPCs) and Small Businesses must file an annual return in Form MGT-7A.

2. Except for One Person Companies (OPCs) and Small Businesses, Form MGT-7A is required for all Annual Returns. Within 60 days of the conclusion of the AGM, the same must be lodged with the Registrar of Companies (including event date).

ANNUAL RETURN FILING PROCEDURE IN GENERAL

1. Prepare the Annual General Meeting Notice, Agenda, Notes to the Agenda, and other materials (AGM)

2. Organize a Board of Directors meeting and pass the required resolutions.
3. Appoint an auditor to do due diligence on the financial statements and prepare them in accordance with Schedule III of the Companies Act, 2013.

Extended due dates of Income Tax Return and Tax Audit

4. According to the Companies Act of 2013, the Board Report, Annual Return, and other essential documents should be prepared by the Director of the company.

5. Another Board Meeting should be held to approve the company’s draught financial statements, Board Report, and Annual Return, which must all be prepared and reviewed by the company’s directors.

6. Organize an annual general meeting (AGM). Only until the company’s financial statements are accepted by the shareholders at the Annual General Meeting are they considered final.

7. Gather all relevant documentation for filing annual returns.

What is the date of Effective Voluntary Cancellation of Registration under the IT ACT?

Say 12AA Registration, Registration u/s Sec 10 (23C) , PAN NO, TAN NO. etc

1.Voluntary Cancellation of any Registration ( Maybe granted Sec 12AA, u/s 10(23C, etc), Assessee may apply for cancellation of the Registration to the Authority at any point of time.

2.Once the cancellation application was received by the Authority, it is the duty of the Authority Either to accept it OR issue a Show Cause Notice to the Assessee within a reasonable time.

[pt_view id=”14aacd06vd”]

3.Where no show cause notice was received within a reasonable time then Date of Cancellation of Registration has to be accepted as on the date when Assessee made the application before the Authority.

4.Where Show Cause Notice was received from the Authority, towards Cancellation Application, then the Effective date of Cancellation shall be held as the Date on Conclusion of hearing before the Authority OR reply to the Show Cause notice was placed before the Authority.

The above view was based upon the Principle that
” All the Powers held by someone in a Public Office are powers held in TRUST for the benefit of the Public at Large.
Officers have no discretion either to use or not to use the powers given by the ACT to the Officers.

registration

5.Ex: For deciding the Effective Date of Voluntary Cancellation of Registration:
(i). Date of Application: 5th Feb 2019.
( ii). Show cause notice issued by Deptt: 10.03.2019.
(iii). Date of the hearing of Show Cause Notice. 20.03.2019.
(iv). Date of communication towards Cancellation from.Deptt: 05.06.2021.

Here the date of Voluntary Cancellation of Registration Shall be the date when on Conclusion of hearing of the Show Cause Notice that is 20.03.2019.

Date of Communication from Deptt. Towards Cancellation that is 05.06.2021 has no Relevance.

According Assessee is not under any obligation to fulfil the provisions relating to the Registration From.FY 2019-20.

The above view is supported by the Judgment of the ” NAVAJBAI RATAN TATA TRUST vs. PCIT (MUM.ITAT).

Nut Shell:

1.Voluntary cancellation of Registration ( Say 12AA, (10(23C)), shall be effective from the date on conclusion of the Hearing or filling reply to the Show Cause Notice towards Cancellation.

2.No Show cause notice it is the date of Application for Cancellation.

3.Date of Deptt’s letter granting Cancellation has no relevance to decide, Date of Cancellation.

I think this article may help you to fulfil your professional endeavours. Please read and circulate.