MCA Revises Definition of Small Company: New Thresholds Effective 1 December 2025

The Ministry of Corporate Affairs (MCA) has announced a major update to the definition of a Small Company under the Companies Act, 2013. Through the Companies (Specification of Definition Details) Amendment Rules, 2025, notified via G.S.R. 880(E) on 1 December 2025, the Government has expanded the financial limits for classifying a company as a Small Company.

This amendment will benefit thousands of private limited companies, MSMEs, and startups by reducing their compliance burden and supporting ease of doing business.

New Small Company Definition (From 1 December 2025)

A company will now be considered a Small Company if both conditions below are satisfied:

• Turnover is calculated based on the latest audited financial statements. ​
• Both conditions (capital and turnover) must be satisfied in addition to other eligibility filters.

Companies Excluded From ‘Small Company’ Status

Even if a company meets the financial thresholds, it cannot be classified as a Small Company if it is any of the following:

• A public company.
• A holding or subsidiary company.
• A company registered under Section 8 (for charitable purposes).
• A company governed by any special Act.

Only private companies that meet the turnover and capital limits and are not listed under the exclusions can claim Small Company benefits.

Why MCA Increased the Small Company Limits

The revised thresholds are aimed at: ​

• Reducing regulatory and compliance burden on smaller corporates
• Promoting Ease of Doing Business for startups and MSMEs
• Aligning the Companies Act limits with current business scales and inflation.

This expansion adds more growth-stage private companies to the Small Company framework, particularly benefiting businesses considering conversion from proprietorship to a private limited company.

Key Benefits and Regulatory Relief for Small Companies

Qualifying as a Small Company unlocks substantial compliance relaxations under the Companies Act, 2013, including

• Simplified Board Meetings: Requirement reduced to only two meetings per year (one per half-year) instead of four.
• Relaxed Financial Reporting: Exemption from preparing a Cash Flow Statement as part of financial statements.
• Abridged Annual Return: Eligibility to file a simpler Annual Return in Form MGT-7A, which a single director can sign if no Company Secretary is appointed.
• Auditor Rotation Exemption: No mandatory rotation of auditors (which is otherwise required every 5 or 10 years for other companies). For comprehensive statutory audit and compliance services, professional guidance is recommended.
• Lower Penalties: Penalties for most defaults are reduced to half the normal amount under Section 446B of the Act.
• The reduced reporting burden includes exemption from detailed auditor reporting under CARO (Company Auditor’s Report Order). Small Companies are also exempt from reporting on the adequacy of internal financial controls.

Practical Impact and Transitional Considerations

The amendment is a deregulatory measure to align legal thresholds with economic growth and inflation.

However, its timing has created a specific ambiguity for the current compliance season:

• The MCA has extended the filing deadline for Annual Returns for the financial year 2024-25 to 31 December 2025.
• This raises a question: Can a company that did not qualify as a Small Company as of March 31, 2025 (FY end) file the simpler Form MGT-7A? This depends on whether the company qualifies under the new threshold as of the effective date, December 1, 2025.
• Similar uncertainties apply to immediately availing of benefits, such as the cash flow statement exemption. This exemption relates explicitly to the FY 2024-25 financials.

As of now, this requires urgent clarification from the MCA to ensure uniform compliance. Companies in this situation should consult with a professional – consider our virtual CFO services for SME compliance and strategy until official guidance is issued.

How to Proceed: A Compliance Checklist

If your company is a private firm and not among the excluded types, follow these steps to assess your status and next steps:

1.     Review Financials: Check if your paid-up capital is ≤ ₹10 crores and your turnover for FY 2024-25 is ≤ ₹100 crores.

2.     Assess immediate filings: If you qualify under the new limits but not the old ones, you must consult a Company Secretary or Chartered Accountant. This professional will advise on whether to use Form MGT-7 or MGT-7A for your pending annual return. Refer to our complete guide to Annual ROC filing requirements.

3.     Plan forward by updating your internal compliance calendar to leverage available benefits. These benefits include reduced board meetings and simplified reporting for the 2025-26 financial year onward.

4.     Monitor Status Annually: Remember that Small Company status is not permanent. It must be reassessed each year based on the latest audited financials; you will lose the benefits if you exceed either threshold in a future year.

Conclusion

The MCA’s 2025 amendment significantly increases the Small Company limits to ₹10 crore of paid-up capital and ₹100 crore of turnover. This policy change strengthens India’s business environment and supports MSME and startup growth by expanding eligibility and easing regulatory burdens.