New definition of Small Company- Applicable from FY 2021-22 onwards

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The new definition of Small Company- Know whether your company falls into Small Companies

The Ministry of Corporate Affairs has notified an amendment in the Companies (Specification of Definitions Details) Rules, 2014 that came into force on 1st April 2021. The MCA (Ministry of Corporate Affairs) has effected this amendment in accordance with the proposal of the Honourable Finance Minister to revise the definition of Small companies in India by increasing the paid-up capital limit from INR 50 Lacs to INR 2 Crores in the Union Budget 2021 while the turnover threshold by enhancing from INR 2 crores to 20 crores.

Currently, almost 13.2 lacs of companies are active, out of which more than 12 lacs companies are classified as small companies as per the official statement. Recently in Budget 2021, there has been a development that helped more companies as the definition has been changed with the purpose of giving the benefit of the liberalized regime. Before the said change was introduced nearly 8 lacs companies fell under the purview of small companies. But after the change in the norms of the paid-up share capital and turnover threshold have helped an additional 2 lakhs companies avail themselves the relief.

Related read: Benefits available to small companies in India

The new definition of the Small Companies

As per the new definition and threshold limits, companies with a paid-up capital of INR 2 crore or less, and turnover of INR 20 crore or less come are defined as small companies. The earlier threshold was INR 50 lacs or less in paid-up capital and INR 2 crore or less in turnover.

Paid-up share capital50 lakhs2 crores
Turnover2 crores20 crores

Small companies enjoy various advantages over other companies in terms of compliance requirements. For instance, a small company requires to hold only two board meetings in one fiscal year, unlike other companies which are required to hold four such meetings in the same period.

Apart from this, the Small companies are not required to maintain their cash flow statement and their annual returns could simply be signed by a company secretary or a single director.

Get the full Information: Key Highlights of Budget 2021


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