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.”
A “small company” under Section 2(85) refers to a company (other than a public company) that meets both the following criteria:
Paid-up Share Capital:
Does not exceed ₹50 lakh (extendable up to ₹10 crore).
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 has now notified enhanced limits under the Companies (Specification of Definitions Details) Amendment Rules, 2025.
| Particulars | Earlier Limit | Revised 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.
While the Companies Act does not define “big companies,” it offers multiple compliances relaxations to entities classified as small companies:
Abridged Annual Return (Form MGT-7A).
Only aggregate remuneration of directors required.
Only one director signature required if the company has no CS.
Mandatory auditor rotation not applicable.
Audit limit of 20 companies per CA excludes small companies.
CARO not applicable.
IFC (Internal Financial Controls) reporting not required.
Only 2 meetings per year.
Private companies:
One meeting per half-year
Minimum 90-day gap
Eligible for fast-track mergers:
Between two or more small companies
Between startups and small companies
50% reduced penalties
Max: ₹2,00,000 for company
Max: ₹1,00,000 for officers
While the notification is welcomed, several operational gaps need MCA/ICAI clarification:
Small companies can file MGT-7A, but if turnover exceeds ₹50 crore, MGT-8 certification is required—leading to contradiction.
Small companies may fall under CSR applicability (Sec 135), but CARO reporting is exempt.
An abridged CARO format may be required for consistency.
Companies with ₹100 crore turnover but no cash flow statement may face issues with:
Bank loan processing
Investor due diligence
Projections and valuations
Different regulators define “small entity” differently:
Accounting Standards Level I/II/III
MSMED Act
Cost Audit applicability
This creates compliance confusion.
Companies that already dematerialised securities under old limits cannot re-materialise.
MCA may need to allow:
Optional re-materialisation
Reduced annual demat compliance burden
Small companies should get simplified labour law compliance for non-safety related filings.
Scope for further ease:
Simpler TDS/TCS rules
Reduced filing burden
Auto-approval for lower TDS certificates
Simplified withholding obligations
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.
How can we help? *
