Running a Private Limited Company in India comes with a long list of regulatory obligations. Board meetings, statutory audits, CARO reporting, annual filings. The compliance calendar can feel relentless, especially for businesses that are still finding their footing. But here's something many founders and compliance managers overlook: if your company meets the small company criteria India prescribes under Section 2(85) of the Companies Act, 2013, you qualify for a range of meaningful relaxations.
These aren't trivial concessions. They include fewer board meetings, exemption from cash flow statements, reduced penalties, and freedom from mandatory auditor rotation. For existing Pvt Ltd owners managing tight budgets and lean teams, understanding the small company turnover limit India and capital thresholds can translate into real savings in time, money, and professional fees.
Legal Definition: Section 2(85) of the Companies Act
Section 2(85) defines a small company as a company other than a public company whose paid-up share capital does not exceed four crore rupees and whose turnover as per the profit and loss account for the immediately preceding financial year does not exceed forty crore rupees. Both conditions must be met simultaneously. If either threshold is breached, the company loses its small company classification for that financial year.
It is worth noting that certain categories of companies are explicitly excluded from this definition regardless of their size. These include Section 8 companies (formed for charitable purposes) and companies governed by any special Act. A holding company or a subsidiary company also cannot claim small company status.
Small Company Criteria India: Eligibility at a Glance
The eligibility thresholds were significantly enhanced by the Companies (Specification of Definitions Details) Amendment Rules, 2021. Before this amendment, the limits stood at Rs. 2 crore for paid-up capital and Rs. 20 crore for turnover. The revised limits doubled both figures, bringing lakhs of additional private limited companies under the small company umbrella.
| Parameter | Current Threshold | Previous Threshold |
| Paid-up Share Capital | Does not exceed Rs. 4 crore | Previously Rs. 2 crore (before 2021 amendment) |
| Turnover | Does not exceed Rs. 40 crore | Previously Rs. 20 crore (before 2021 amendment) |
| Both Conditions | Must be satisfied simultaneously | Either condition breached = not a small company |
This classification is assessed on a year-to-year basis. A company may qualify as a small company in one financial year and lose the status in the next if its capital or turnover exceeds the prescribed ceiling. If you are planning to incorporate a new company and want to understand whether you'd qualify from the outset, the Private Limited Company Registration page at Patron Accounting explains the formation process in detail.
Compliance Exemptions and Benefits for Small Companies
The real value of the small company classification lies in the compliance relaxations it unlocks. These exemptions reduce the regulatory burden without compromising the fundamental governance framework that protects shareholders and creditors.
| Compliance Area | Regular Pvt Ltd Company | Small Company |
| Statutory Audit | Mandatory every year | Mandatory, but auditor can use simplified reporting (CARO exemption) |
| Board Meetings | Minimum 4 per year | Minimum 2 per year (one each half-calendar year) |
| Cash Flow Statement | Required in financial statements | Exempt from preparing cash flow statement |
| Annual Return Signing | Must be signed by a Company Secretary | Can be signed by a director if no CS appointed |
| Auditor Rotation | Mandatory rotation after prescribed tenure | Exempt from mandatory rotation of auditor |
| Internal Audit (Sec 138) | Applicable based on thresholds | Generally exempt |
| Lesser Penalties | Standard penalties apply | Penalties capped at 50% of normal penalties (Sec 446B) |
| AGM Notice Period | 21 clear days | Shorter notice allowed with consent |
The penalty reduction under Section 446B deserves particular attention. For small companies, any penalty imposed under the Act is capped at half the amount prescribed for regular companies. This applies across a wide range of defaults, from late filing of annual returns to non-compliance with board meeting requirements. For a lean startup or a family-owned business, this halving of financial risk is substantial.
Board Meetings: A Practical Simplification
Regular private limited companies must conduct at least four board meetings every calendar year, with no more than 120 days between consecutive meetings. Small companies, however, need to hold only two board meetings per year, one in each half of the calendar year. This relaxation is governed by the proviso to Section 173(5).
For companies where the board comprises the founders themselves, reducing the meeting frequency from quarterly to half-yearly removes a layer of administrative effort. Fewer meetings mean fewer agenda preparations, fewer minutes to draft, and fewer statutory filings tied to meeting records.
Audit and Financial Reporting Relaxations
While the statutory audit itself remains mandatory for all companies regardless of size, small companies benefit from the exemption from CARO (Companies Auditor's Report Order) reporting. This simplifies the auditor's scope and often reduces audit fees. The appointment of auditor process remains the same, but the audit deliverables are lighter.
Additionally, small companies are exempt from preparing a cash flow statement as part of their financial statements. For companies with straightforward financial operations, this removes a reporting obligation that often requires professional assistance to prepare correctly. The financial statements need only include the balance sheet, profit and loss account, and notes to accounts.
Perhaps the most impactful audit-related benefit is the exemption from mandatory auditor rotation. Under Section 139(2), companies above certain thresholds must rotate their auditor or audit firm after a prescribed tenure. Small companies are free from this requirement, allowing them to retain a trusted auditor for as long as they see fit.
Exclusions: Who Cannot Claim Small Company Status?
Even if a company's financials fall within the prescribed limits, the following categories are excluded from the definition of a small company.
- Public companies are excluded irrespective of their size. The small company classification is available only to private companies.
- Holding and subsidiary companies cannot qualify. If your Pvt Ltd company is a subsidiary of another entity or holds shares in a subsidiary, the small company exemptions don't apply.
- Section 8 companies (not-for-profit companies) are governed by a separate regulatory framework and fall outside the ambit of this classification.
- Companies governed by special Acts, such as banking, insurance, or electricity companies, are also excluded.
A Practical Scenario: How It Works
Consider a Pune-based IT services company incorporated as a Private Limited entity. Its paid-up capital stands at Rs. 1 crore, and its turnover for the preceding financial year was Rs. 12 crore. Both figures fall comfortably within the small company turnover limit India and the capital threshold. This company qualifies as a small company and can avail of all the associated exemptions.
Now assume the same company secures a large contract in the following year, pushing its turnover to Rs. 45 crore. The moment turnover breaches the Rs. 40 crore ceiling, the company forfeits its small company status for that financial year and must comply with all regular private limited company requirements, including four board meetings, a cash flow statement, and the possibility of auditor rotation.
This dynamic nature of the classification means you need to assess eligibility at the close of every financial year. Staying on top of this is especially important for growing companies that may oscillate near the threshold. If your business is at the stage where structuring or restructuring is on the table, exploring the differences between an LLP Registration and a Pvt Ltd Company could also be worthwhile.
Conclusion: Don't Leave These Benefits on the Table
The small company classification under the Companies Act, 2013 is one of the most underutilised benefits available to Indian private limited companies. With revised thresholds of Rs. 4 crore in paid-up capital and Rs. 40 crore in turnover, a vast majority of Indian Pvt Ltd companies now qualify. The compliance savings, from fewer board meetings and simplified financial statements to halved penalties and auditor retention flexibility, can meaningfully reduce your operating costs and administrative overhead.
If you are unsure whether your company qualifies or want to ensure you are taking full advantage of every exemption available, a conversation with a qualified professional can help. Patron Accounting assists businesses with Private Limited Company Registration, ongoing compliance, and strategic structuring so you can focus on growing your business rather than wrestling with regulations.
