Module: | Statutory Audit, NFRA & ICAI Standards
Q42: Consider the following statements regarding the revised definition of a "Small Company" under Section 2(85) of the Companies Act, effective from December 1, 2025:
1. The paid-up share capital threshold for classifying an entity as a small company was increased from Rupees 4 Crore to Rupees 10 Crore.
2. The annual turnover threshold, based on the preceding financial year, was enhanced from Rupees 40 Crore to Rupees 100 Crore.
3. A subsidiary company can avail the benefits and reduced compliance burden of a small company if it strictly meets these new financial thresholds.
Which of the above statements is/are incorrect?
2. The annual turnover threshold, based on the preceding financial year, was enhanced from Rupees 40 Crore to Rupees 100 Crore.
3. A subsidiary company can avail the benefits and reduced compliance burden of a small company if it strictly meets these new financial thresholds.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the Ministry of Corporate Affairs officially hiked the capital limit to Rs 10 Crore.
Statement 2 is correct; the turnover limit was simultaneously raised to Rs 100 Crore.
Statement 3 is incorrect; the proviso to Section 2(85) explicitly excludes any holding company, subsidiary company, Section 8 company, or company governed by a special act from being classified as a small company, regardless of their financial size.
Historical/Related Context: The government has consistently revised these thresholds upwards over the past few years (from Rs 2Cr/20Cr to Rs 4Cr/40Cr, and now Rs 10Cr/100Cr) as part of its "Ease of Doing Business" initiative.
Causal Reasoning: Expanding the definition allows thousands of MSMEs to operate with reduced compliance costs.
However, subsidiaries of larger conglomerates are excluded because they are backed by significant group-level resources and present higher systemic risks.