India Expands Small Company Definition, Easing Compliance for Businesses

India has raised the financial thresholds for defining a small company under the Companies Act, 2013.

This regulatory update provides businesses with a valuable window to streamline governance, reduce reporting costs, and reassess their compliance strategy for the year ahead.

In a move aimed at further improving the ease of doing business, the Ministry of Corporate Affairs (MCA) has significantly expanded the financial thresholds used to classify “small company” under the Companies Act, 2013. The change, notified in the Official Gazette through G.S.R. 880(E) on December 1, 2025, raises the limits for paid-up capital and turnover to INR 100 million (US$1.11 million) and INR 1 billion (US$11.1 million), respectively, more than doubling the previous ceilings.

The revised definition has come into force immediately upon publication in the Official Gazette.

What the new definition means

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Under the Companies (Specification of Definition Details) Amendment Rules, 2025, a company will now qualify as a small company only if both conditions are satisfied simultaneously:

• Paid-up share capital ≤ INR 100 million (US$1.11 million)
• Turnover ≤ INR 1 billion (US$11.1 million)

Previously, the limits were INR 40 million (US$444,394.5) for paid-up capital and INR 400 million (US$4.44 million) for turnover.

The notification substitutes Rule 2(1)(t) to reflect the revised ceilings applicable to Section 2(85) of the Companies Act, widening the scope of entities eligible for reduced compliance obligations.

Why the change matters

Larger pool of companies to benefit

The central government estimates that a substantial number of private companies, particularly in services, technology, start-ups, manufacturing micro-small and medium enterprises (MSMEs), and professional service firms, will now fall under the small company category.

According to MCA data and commentary from past reforms (2021 and 2022 threshold increases), each upward revision has historically brought 20-30 percent more companies into the simplified regulatory framework.

Reduced compliance burden

Small companies based in India enjoy several relaxations under the Companies Act, 2013, including:

• No mandatory cash-flow statements in financial reporting
• Lower penalties for certain defaults
• Exemption from mandatory internal audits (subject to other criteria)
• Simplified board meeting and filing requirements
• Eligibility for fast-track mergers under Section 233

These measures are particularly attractive for early-stage and mid-sized firms seeking to reduce administrative overheads.

Also Read: Micro, Small, and Medium Enterprises in India: An Explainer

Supports India’s MSME and startup growth agenda

The update aligns with India’s ongoing efforts to harmonize corporate regulation with the growth trajectory of new-economy enterprises. Rising revenues across tech-enabled services, e-commerce, manufacturing, and professional services have pushed many companies close to the old turnover threshold of INR 400 million.

By raising the limits, India aims to ensure that growing businesses do not face a sudden escalation of compliance costs as they scale.

India’s latest policy direction is consistent with global best practices designed to encourage the growth of small and medium enterprises. Comparable frameworks can be seen in the UK, where Companies House, under the UK Companies Act, 2006, follows graded compliance tiers, and in Singapore, where the Accounting and Corporate Regulatory Authority (ACRA) provides audit exemptions for smaller entities.

Industry response

Corporate advisors note that the revised limits bring India closer to international benchmarks for SME categorization.

Raising the thresholds gives breathing space to high-growth companies that were previously pushed into a heavier compliance bracket too early. This is a pragmatic reform and provides continuity for businesses transitioning from start-up to mid-size operations. – Krishan Aggarwal, Operations Director, Dezan Shira & Associates India.

Startups and investors also stand to benefit. PE and venture-backed firms that operate through private company structures will see smoother compliance transitions during scale-up years, lowering both legal costs and operational friction.

Ease of doing business: Part of a larger reform pattern

The amendment builds on several recent MCA initiatives:

• Decriminalization of minor offenses under the Companies Act
• Expansion of faceless compliance and adjudication systems
• Continued rollout of V3 MCA portal functionalities
• Encouragement of digital corporate governance via Verified Self e-Identification (VSeID) and e-filings

Together, these reforms aim to strengthen India’s corporate regulatory environment while reducing compliance touchpoints, one of the key metrics evaluated in global investment and competitiveness rankings.

What companies should do next

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• Assess eligibility under the new thresholds for FY 2025-26 onwards.
• Re-evaluate compliance calendars, financial reporting requirements, and statutory audit triggers.
• Consider fast-track restructuring, where relevant, for group entities planning mergers or internal consolidation.
• Align internal governance with reduced but still mandatory obligations, especially around filings and board processes.

Tax and regulatory advisors expect more detailed guidance from MCA in the coming months on how companies transitioning into the “small company” bracket should manage reclassification in filings.

Conclusion

The expanded definition of “small company” marks a regulatory win for India’s corporate ecosystem. By lifting the financial ceilings to INR 100 million (US$1.11 million) in paid-up capital and INR 1 billion (US$11.1 million) in turnover, India has potentially opened the door for thousands more businesses to benefit from simplified compliance, lower costs, and smoother corporate restructuring.

The reform is another signal of India’s commitment to fostering a growth-friendly regulatory environment – particularly for MSMEs and high-velocity, innovation-led enterprises.

(US$1 = INR 90.01)

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