The Ministry of Corporate Affairs (MCA) has revised the definition of small companies under the Companies Act 2013, by increasing their thresholds for paid-up capital and turnover to ‘not more than INR 4 Cr’ and ‘not exceeding over INR 40 Cr’ respectively.
It has to be noted that small companies earlier had a threshold of ‘not exceeding INR 2 Cr’ for paid up capital and ‘not exceeding INR 20 Cr’ for annual turnover.
With the new revision, the corporate affairs ministry aims to reduce the compliance burden for small businesses.
“The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies,” the ministry said.
As per the revised definitions, the ministry has exempted small businesses to prepare cash flow statements (which is inclusive of financial statements) and permitted them to file a condensed annual return.
According to the statement, small businesses do not have to change their auditors after 10 years. Besides, the auditors will not have to report to the government on the adequacy of internal financial controls and the effectiveness of a financial report.
The ministry said that small businesses (MSMEs) showcase the entrepreneurial aspirations and capabilities of scores of Indian citizens. These businesses also help bolster growth as well as employment opportunities in the country.
Besides, the ministry will also impose less penalties on small businesses. Such businesses will further be allowed to hold only two board meetings in a year and their respective company secretary will now be permitted to sign annual report (of the company). However, in the absence of the company secretary, the company’s director can also sign the annual report.
The development has come at a time when the Centre is taking several measures to protect the interest of small and medium-sized businesses in India.
In May, anti-competition body CCI was reported to be probing ecommerce giants such as Flipkart and Amazon for misusing their market dominance.
Additionally, the Centre has rolled out ONDC network for small businesses in a bid to provide them level-playing ground to underserved businesses.
In the current financial year (FY22), the central government has allocated a budget for MSMEs of INR 15,700 Cr, up by around 2x from INR 7,572 Cr in FY21.
According to an IBEF report, the number of MSMEs in the country is likely to increase by a CAGR of 18.5% during 2019 and 2020.