3 December 2025
Revision in the Definition of "Small Company" under the Companies Act, 2013
 
The Ministry of Corporate Affairs (MCA) has continued its focus on ease of doing business by further expanding the eligibility criteria for classification as a Small Company under Section 2(85) of the Companies Act, 2013 ('Act'), read with Rule 2(1)(t) of the Companies (Specification of definition details) Rules, 2014.
Small Companies enjoy significant compliance relaxations, including fewer filings, simplified reporting formats, reduced penalties, and lighter board meeting requirements. They are also exempt from preparing Cash Flow Statements and can file a shorter Annual Return (MGT-7A).

What is Changing:

Post amendment to Rule 2(1)(t) of the aforesaid rule, a company will now qualify as a Small Company if its paid-up capital does not exceed INR 10 crores (increased from INR 4 crores) and its turnover as per Profit & Loss account of immediately preceding financial year does not exceed INR 100 crores (up from INR 40 crores). This significantly increases the number of companies eligible for Small Company status. The amendment took effect on its publication date in the Official Gazette, i.e., 1 December 2025.

Companies Excluded (unchanged)

Even if thresholds are met, the following continue to be excluded from "Small Company" status:
  • Public companies
  • Holding or subsidiary companies
  • Section 8 companies
  • Companies or body corporates governed by special Acts
The definition of Subsidiary companies as per the Act also includes the Indian subsidiaries of the foreign body corporates and therefore these companies continue to remain ineligible to be classified as a Small Company.

Our Comments

With the revised thresholds, additional private companies, particularly emerging businesses and professionally-managed enterprises, will qualify as Small Companies, enabling access to the compliance relaxations noted above. The revision near the close of calendar year 2025 aligns with the Government's ongoing policy to calibrate corporate compliance to support growth, encourage formalization, and ease the burden on these companies.

For Indian subsidiaries of foreign corporates, which continue to be ineligible for small company status, it remains to be seen whether the Government will extend these benefits to them in the future or retain the current eligibility framework.

Companies should quickly assess whether they now fall within the revised thresholds and realign their compliance and reporting processes accordingly, in consultation with their auditors. The expanded Small Company exemptions offer a real opportunity to cut down compliance effort and streamline governance, making this a positive and timely change for many businesses.
Sudit K. Parekh & Co. LLP
 +91 22 6617 8100 | skpco.info@skparekh.com | www.suditkparekh.com
Mumbai | Pune | Hyderabad | Gurugram | Bengaluru
DISCLAIMER
This alert contains general information which is provided on an “as is” basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This alert should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this alert is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

Whilst every effort has been made to ensure the accuracy of the information contained in this alert, the same cannot be guaranteed. We accept no liability or responsibility to any person for any loss or damage incurred by relying on the information contained in this alert.

© 2025 Sudit K. Parekh & Co. LLP | All Rights Reserved.