Home > Income Tax > Help Center > Small Companies & Tax Compliance Last Updated: Sep 21st 2022

How Small Companies enjoy lower Tax Compliance in India?

Every Startup or business setup as a company tend to start small for few years before launching itself as a major, viable company. Govt of India, amended the "Small Company" definition by increasing the turnover limit and paid-up capital to include most of the companies under Small Company definition.

Know more on new IT, ROC rules for Small Companies to ease the compliance burden.

Small Business & Tax Compliance

How Small Company Definition changed over the time?

The concept of small company was introduced under Section 2(85) of the Companies Act was further amended to reduce compliance burden on small companies. The Ministry of Corporate Affairs (MCA) revised the definition of "Small Company" to facilitate Ease of doing business and reduce compliance burden as the small companies contribute to growth and employment in significant manner.

The new "Small Company" categorised based on the maximum paid up share capital and the turnover of the previous financial year (FY)

PeriodMax. Paid Up Share CapitalTurnover
till 31st Mar 202150 Lakhs2 Crores
from 01st Apr 2021 to 14th Sep 20222 Crores20 Crores
from 15th Sep 2022 (NEW)4 Crores40 Crores


78,543

Estimated number of active companies whose turnover between Re.1 and Rs. 40 Crores per IT Returns filed in FY 2020-21, who may get benefitted from the new rules.

120,222

Estimated number of active companies whose turnover recorded NIL (Zero) per IT Returns filed in FY 2020-21, who may also get benefitted in case such companies are filing their taxes and compliance.



Benefits of being a "Small Company"

Being a small company will help the companies in reducing their compliance burden and they can increase their focus on developing the business instead of compliance. Below are the some of the benefits of small company


1. Number of Board Meetings

Every company is required to hold 4 board meetings in a year. But in case of small companies, 2 board meetings per year are sufficient. The time gap between 2 board meetings should not be less than 90 days.


2. Cash Flow Statements

Generally Financial statements includes cash flow statements also. But Small Companies are exempted from preparing Cash Flow Statements.


3. Mandatory rotation of Auditor not required

Auditor needs to be rotated (changed) for every 5 years for the companies other than small companies. Small Companies are exempted from rotating Auditor for every 5 years. They can continue the same auditor


4. Reporting of Internal Controls

An Auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.


5. Certification not required

Annual returns of the small companies can be signed by the director of the company instead of practicing professionals


6. Abridged Annual Return

Small companies can prepare director report in abridged (shorter format). MGT 7A has been prescribed by MCA towards Annual return by Small Companies / OPC


7. Lesser penalties for small companies

While this is subjective, Govt of India committed to provide the relief for small companies to file their compliances and close if needed. While such benefits available for DIPP accredited Startups, the latest announcement is a big relief to founders, MDs and entrepreneur.

The definition of small company is specific to each company and the company status might change depending on the turnover and paid-up capital of every year. Hence the companies needs to determine the status every year.
You may be interested in ..

Our Tax Services

Online Income Tax Filing Time: ~7 mins
  • Comprehensive & Accurate > No limits.
  • Highly Secure > Peace of mind.
  • Maximum Deductions > Save on Taxes.
  • No more visits to Tax Consultants > Save Time & Money.
  • Real-time Tax Calculation
  • Available in both Web Browser & Mobile App

Start Now

GST Accounting Software Price: FREE for 1st year in India  refer pricing for other countries such as India, Australia, Malaysia, Nepal, Pakistan, Singapore, Sri Lanka, & UK

Easiest GST ready Accounting software

  • GST Compliant Invoicing
  • Online - Highly available
  • Quick Onboarding - Import your data from legacy
  • Personalization - Highly customized Invoicing
  • Drafts > Estimates > POs > Delivery Challans > Invoices > CR/DR Notes > RCs & All.
  • Barcode scanner Integration
  • Amazon, Flipkart Imports
  • Individual, or Bulk Payments - just a Click away
  • Multiple users can Book / Bill at the same time
  • Quick Invoicing, Auto Delivery, & Reminders
  • Multi-Channel GST returns preparation
  • Customized for Regular and Composition
  • AI Data Insights
  • AI Prioritization
  • AI Alerts
  • Expenses & Purchases
  • Real Time P & L
  • Barcode Scanner, e-Way Bill Integration
  • Excellent User Experience
  • Easy to understand language
  • Artificial Intelligence enablement
  • above all, Count on our Outstanding Client Service

Start NowLearn more
Tax Expert Services Price: Rs.599 onwards

GST
  • Affordable Tax Services for Businesses, Associations, Individuals
  • GST Registration
  • GST Return Filing
  • GST Accounting
  • GST Consultation
  • Notice Handling
Income Tax
  • Income Tax Return Filing for Businesses, Associations, Individuals
  • Tax Savings
  • TDS Preparation
  • General Tax Compliance
  • Investment Advisory
  • Capital Gains Consultation
  • Tax Planning
  • Notice Handling
Virtual Accounting
  • Complete Accounting for Businesses, Associations, Individuals
  • Compliance & Accounting Portal Access for easy monitoring
  • Accounting Advisory
  • Tax Savings
  • GST, Income Tax, TDS, General Tax Compliance
  • Business Planning

Contact Now   WhatsApp Now


How to get help from EZTax.in