The Ministry of Corporate Affairs (MCA), vide Notification No. G.S.R. 880(E) dated 1st December 2025, 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 Companies (Specification of Definitions Details) Rule, 2014. The amendment increases the financial thresholds for paid-up capital and turnover, thereby expanding the scope of companies eligible for lesser compliances and regulatory exemptions.
Revised Thresholds
The comparative thresholds pursuant to the amendment are as follows:
| Criteria | Prior Limits (15.09.2022 – 30.11.2025) | Revised Limits (w.e.f. 01.12.2025) |
| Paid-up Share Capital | Not exceeding ₹4 Crores AND | Not exceeding ₹10 Crores AND |
| Turnover (Preceding FY) | Not exceeding ₹40 Crores | Not exceeding ₹100 Crores |
Impact of Amendment:
The immediate statutory impact and privileges include:
- Board Meeting Frequency: Requirement reduced to two board meetings in a calendar year (one in each half-year with a minimum gap of 90 days), as opposed to four meetings under Section 173(5).
- Financial Statements: Exemption from preparing a Cash Flow Statement as part of the financial statements under Section 2(40).
- Annual Return: Eligibility to file an abridged Annual Return in Form MGT-7A. The return may be signed by the Company Secretary alone, or by a single Director if no Company Secretary is appointed [Section 92(1)].
- Auditor Rotation: Exemption from the mandatory rotation of auditors (maximum tenure of 5/10 years) under Section 139(2).
- Reduced Penalties: Application of Section 446B, which caps penalties for the company and officers in default at one-half of the penalty specified in the relevant section (subject to prescribed maximums).
- Certification of Forms: Exemption from the requirement of pre-certification by professionals (CA/CS/CMA) for certain e-forms.
Exceptions It is pertinent to note that a company shall not qualify as a Small Company, regardless of the above thresholds, if it falls under the exclusions provided in the proviso to Section 2(85):
- A Public Company;
- A Holding or Subsidiary Company;
- A Company registered under Section 8 (Charitable Object); or
- A Company or Body Corporate governed by any Special Act.
While the amendment to Section 2(85) is a welcome deregulatory measure, its notification w.e.f. 1st December 2025 creates immediate interpretive ambiguities for the ongoing compliance season. Given that the Ministry has extended the due date for filing Annual Returns for FY 2024-25 until 31st December 2025, companies falling within the expanded thresholds face the following practical difficulties:
- Determination of Status for FY 2024-25: Whether the status of a “Small Company” 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.
- Form Selection (MGT-7 vs. MGT-7A): A company that was “non-small” under the old limits as of 31st March 2025 but qualifies as “Small” under the new limits today faces a dilemma. If the portal permits, can such companies avail the simpler Form MGT-7A for FY 2024-25, or are they statutorily bound to file the comprehensive Form MGT-7?
- Certification of Annual Return (MGT-8): If a company now qualifies as a Small Company, does the requirement for certification of the Annual Return by a Practicing Company Secretary (applicable to larger companies) still hold for the FY 2024-25 return?
- Auditor Rotation & Cash Flow: Whether exemptions related to the Cash Flow Statement and Auditor Rotation apply immediately to the financial statements currently being filed, despite the Financial Year having concluded prior to the amendment.
The interplay between the effective date of the amendment ie., 1st December, 2025 and the extended filing deadline 31st December, 2025 requires urgent clarification to ensure uniform compliance.