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MCA expands small and medium company definition to promote ease of doing business


Sales upper limit for SMCs raised to Rs 250 crore, borrowings to Rs 50 crore. Also, simpler accounting norms will apply for small businesses.

MCA expands small and medium company definition to promote ease of doing business
The Ministry of Corporate Affairs (MCA) has expanded the definition of small and medium businesses by raising the turnover and borrowing limits. A company with sales of up to Rs 250 crore and borrowings of up to Rs 50 crore in the previous year will now be defined as a small and medium-sized company (SMC), according to a notification issued by the ministry.
The central government stated that the Companies (Accounting Standards) Rules, 2021, will be effective from April 1, 2021. The notification amended the definition of SMCs by increasing the sales threshold from the earlier Rs 50 crore. The previous borrowing limit was Rs 10 crore. SMCs can follow simplified general accounting standards for corporate compliance instead of adhering to Indian Accounting Standards (IndAS) as required by bigger companies.
No banks, financial institutions or insurance firms can come under the definition of SMC. Listed companies are similarly discounted for the purposes of the legal definition. "An SMC which is a holding company or subsidiary company of a non-SMC will not qualify as a small and medium company," the notification also added.
The notification from the MCA also clarified that companies which newly fell into the SMC definition would not be able to avail the simplified accounting standards immediately. The exception from IndAS reporting would only apply to companies that were defined as SMCs for two consecutive accounting periods.
The latest overture from the government towards smaller business is for improving the ease of doing business in the country. A recent survey had found that many smaller businesses, mainly start-ups and MSMEs, faced troubling business environment, including closure due to the lockdowns from the second wave of COVID-19. The government had recently also eased the registration process for MSMEs, forgoing the requirement of additional documents.