What changed
Section 2(85) of the Companies Act, 2013 defines a small company by reference to limits set in the rules. The Companies (Specification of definitions details) Amendment Rules, 2025 substitute Rule 2(1)(t), raising the limits to ₹10 crore of paid-up capital and ₹100 crore of turnover, which are the highest the Act allows. Both conditions must be met, and turnover is taken from the profit and loss account of the immediately preceding financial year.
The definition does not cover public companies, holding or subsidiary companies, companies registered under Section 8, or companies governed by a special Act. A company that qualifies has lighter requirements. These include no cash flow statement (Section 2(40)), the abridged annual return MGT-7A, a minimum of two board meetings a year (Section 173(5)), lower penalties under Section 446B, and the fast-track merger route under Section 233. CARO 2020 also does not apply to small companies.
The rules came into force on publication in the Gazette on 1 December 2025. Small company status is tested each year, so a company that crossed the old limits may qualify again, and one that crosses the new limits loses the status.
Turnover means the gross amount of revenue recognised in the profit and loss account from the sale, supply or distribution of goods or services, as defined in Section 2(91), and paid-up capital is the share capital actually paid up. A company with ₹8 crore of paid-up capital but ₹120 crore of turnover is not a small company, nor is one with ₹50 crore of turnover that is a subsidiary of another company.
Who is affected
Private companies, other than holding or subsidiary companies, Section 8 companies and companies governed by a special Act.
Effective dates
| Item | Date or period |
|---|---|
| Rules notified and in force | 1 December 2025 |
| Paid-up capital limit | Up to ₹10 crore (earlier ₹4 crore) |
| Turnover limit (preceding financial year) | Up to ₹100 crore (earlier ₹40 crore) |
What to do now
- Check paid-up capital and last year’s turnover against the new limits, and confirm the company is not a holding or subsidiary company.
- Agree the status with the statutory auditor before finalising the FY 2025-26 accounts, as it affects the cash flow statement and CARO.
- Use MGT-7A for the annual return if the company qualifies.
Penalty or consequence if missed
There is no penalty for being or ceasing to be a small company, but using the small company relaxations without meeting the test can make a filing defective, for example an annual return in MGT-7A or financial statements without a cash flow statement. While the status applies, Section 446B limits most penalties for a small company to half the amount otherwise payable, up to ₹2 lakh for the company and ₹1 lakh for an officer in default.
Official source
Effective: 1 Dec 2025 · Note published · Last reviewed
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This note summarises a public notification for general information. It is not professional advice and does not cover every condition or exception, and the rule can change again by a later notification. Read the notification itself before acting on it, or consult a qualified professional on your own facts.