Small Company Audit Exemption: When It Applies and When It Does Not

Parameter	Position for Small Companies
Governing Act	Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014 and CARO 2020
Defining provision	Section 2(85) read with Rule 2(1)(t) substituted by G.S.R. 880(E) dated 1 December 2025
Statutory audit	Mandatory every year under Section 139 - NO exemption
CARO 2020 reporting	Not applicable - Para 1(2)(iv) of CARO 2020
ICFR reporting (Sec 143(3)(i))	Not applicable - MCA Notification G.S.R. 583(E) dated 13 June 2017
Auditor rotation (Sec 139(2))	Not applicable - small companies outside scope of Rule 5
AOC-4 and MGT-7A filing	Required - audited financials must be filed with ROC every year

Most founders ask the wrong question. The right question is not "do I need an audit" - the answer is yes, every year, under Section 139. The right question is "which audit obligations switch off when my company qualifies as small under Section 2(85)". Three switch off: CARO 2020 reporting, ICFR reporting and auditor rotation. The audit itself stays. This page walks through the eligibility test, the four exemption layers, the fee impact, and what you still owe the ROC every September and October. Patron Accounting has run this exact eligibility check for over 1,400 private companies across Pune, Mumbai, Delhi and Gurugram in the last three years.

Content is reviewed quarterly for accuracy.

A private company qualifies as a small company for any financial year if, on the immediately preceding year-end, BOTH of these conditions are satisfied AND none of the four exclusions apply.

Source: Companies (Specification of Definition Details) Amendment Rules, 2025 notified via G.S.R. 880(E) dated 1 December 2025, in force from the date of publication in the Official Gazette.

The Four Exclusions (proviso to Section 2(85))

Even if both threshold tests pass, a company CANNOT be a small company if it is:

• A public company
• A holding company or a subsidiary company (irrespective of who the holding or subsidiary is)
• A company registered under Section 8 of the Companies Act, 2013 (non-profit)
• A company or body corporate governed by any special Act (banking companies, insurance companies, NBFCs governed by RBI Act etc.)

Worked example. A private company has paid-up capital of Rs 6 crore and turnover of Rs 85 crore for FY 2024-25. It is not a subsidiary, not a Section 8 company, not governed by any special Act. From FY 2025-26 onwards it qualifies as a small company. The audit fee should drop, CARO reporting falls away, the auditor does not need to be rotated when the five-year term ends, and the annual return moves from Form MGT-7 to the abridged Form MGT-7A. The statutory audit itself continues every year.

Eligibility Documents

• Certificate of Incorporation and current MOA / AOA
• Last filed AOC-4 (showing paid-up capital and turnover)
• Shareholding pattern (to confirm not a subsidiary or holding company)
• Latest audited financial statements

Audit Working Papers

• Trial balance and ledger printouts
• Bank statements and bank reconciliation statements for all accounts
• GSTR-1, GSTR-3B and GSTR-2B for the full year
• Form 26AS, AIS and TDS challans
• Fixed asset register with depreciation working
• Inventory statement signed by management
• Loan agreements, NOC from lenders, and interest computation
• Related party transactions schedule

ROC Filing Documents

• Board resolution approving financial statements
• Board resolution approving Director's Report (simplified format permitted under Section 134(3A))
• DSC of two directors for AOC-4 and MGT-7A signing

All fees and charges listed are indicative only and do not constitute a binding offer. Final amounts may vary depending on the volume of work and the complexity involved.

Professional service charges for drafting, filing, and representation are separate from the statutory fees. The exact fee depends on the complexity of the case, disputed amount, and number of hearings required. Contact us for a detailed quote.

Get a free Small Company Audit Exemption consultation - Call +91 945 945 6700 or WhatsApp us. No-obligation assessment.

25,000+ Businesses Served | 4.9 Google Rating | 50,000+ Documents Filed | 15+ Years in Practice

"We thought our private limited was audit-exempt because we were under Rs 5 crore turnover. Patron's team explained the actual rule in 15 minutes - statutory audit is mandatory, only CARO and ICFR fall away. They cleaned up two years of missed filings and saved us roughly Rs 1.8 lakh in penalties."
- Founder, IT services SME, Pune

"Crossed Rs 100 crore turnover in FY 2025-26 - we are no longer a small company from FY 2026-27. Patron's conversion-year memo mapped the full CARO and ICFR rollout. Our incoming auditor took it as the engagement-letter starting point."
- CFO, manufacturing company, Gurugram

Industries we audit: Manufacturing, Trading, SaaS, Healthcare, Restaurants, Real Estate, Professional Services, Education, Logistics.

With offices in Pune, Mumbai, Delhi and Gurugram, Patron Accounting serves businesses across India both in-person and remotely.

If you are evaluating audit applicability, these adjacent engagements typically come up in the same conversation.

• Statutory Audit: the parent service for every Companies Act audit engagement - signed report under Section 139 with UDIN.
• ITR for Companies: Form ITR-6 filing is mandatory whether or not your company is small, due 31 October or 30 November depending on transfer pricing applicability.
• Accounting Services: bookkeeping support that makes the annual audit faster and cleaner - Tally, Zoho Books and QuickBooks supported.
• Private Limited Company Compliance: annual ROC filings calendar covering AOC-4, MGT-7A, ADT-1 and DIR-3 KYC.
• Appointment of Auditor: first or subsequent auditor appointment with ADT-1 filing within 15 days of AGM.
• Tax Audit: the Section 44AB audit under the Income Tax Act, separate from the Companies Act audit and triggered by turnover thresholds.

Governing Statutes

• Companies Act, 2013 - Section 2(85), Section 139, Section 143, Section 446B
• Companies (Specification of Definition Details) Rules, 2014 - Rule 2(1)(t) as substituted by G.S.R. 880(E) dated 1 December 2025
• Companies (Audit and Auditors) Rules, 2014 - Rule 5 (rotation), Rule 11 (CARO)
• Companies (Auditor's Report) Order, 2020 - Para 1(2)(iv)
• Companies (Management and Administration) Rules, 2014 - Rule 11(1) (MGT-7A)
• Companies (Accounts) Rules, 2014 - Rule 8A (abridged Director's Report)

Key MCA Notifications

• G.S.R. 880(E) dated 1 December 2025 - revised small company thresholds (Rs 10 cr / Rs 100 cr)
• G.S.R. 583(E) dated 13 June 2017 - exemption from ICFR reporting under Section 143(3)(i)
• General Circular 08/2017 dated 25 July 2017 - clarification on applicability of ICFR exemption
• CARO 2020 (full text on MCA portal)
• Companies Act, 2013 (indiacode.nic.in)

Penalty Provisions

• Section 147 - up to Rs 5 lakh on company and Rs 1 lakh on officers in default for non-compliance with audit provisions
• Section 137 - Rs 100 per day per form for late filing of AOC-4
• Section 92 - Rs 100 per day per form for late filing of MGT-7A
• Section 446B - penalty for small companies is 50 percent of the amount otherwise payable, capped at Rs 2 lakh on company and Rs 1 lakh on officer

For FY 2025-26 (March year-end), the dates to mark:

• AGM by 30 September 2026 - Section 96
• Form AOC-4 by 30 October 2026 (within 30 days of AGM) - Section 137. Late filing penalty: Rs 100 per day per form, no cap.
• Form MGT-7A by 29 November 2026 (within 60 days of AGM) - Section 92. Late filing penalty: Rs 100 per day per form, no cap.
• ITR-6 by 30 November 2026 (for companies subject to transfer pricing) or 31 October 2026 (for others) - Income Tax Act.

If you are not yet on Patron's audit list and your AGM is set for September 2026, the audit must start by end June 2026 to leave headroom for clarifications. Beyond that, you compress quality time, increase audit risk, and reduce the chance of a clean audit report.

Small company audit exemption is not what most founders think it is. There is no exemption from statutory audit - Section 139 of the Companies Act, 2013 makes the annual audit mandatory for every company in India. What Section 2(85) actually unlocks is a different package: CARO 2020 reporting drops away, ICFR reporting under Section 143(3)(i) drops away (subject to no AOC-4 or MGT-7A default), and auditor rotation under Section 139(2) does not apply. The annual return moves to the abridged Form MGT-7A. The penalty exposure is halved under Section 446B.

Patron Accounting LLP runs the eligibility check, conducts the statutory audit with the correct exemption disclosures, files AOC-4 and MGT-7A on time, and maps the regulatory transition if you cross either threshold during the year. Our CA and CS team has handled over 1,400 such engagements across Pune, Mumbai, Delhi and Gurugram. The accounting work is technical. The regulatory framing is not. We do both.

Stop guessing whether the audit applies. Get a same-day Section 2(85) eligibility check, a fixed-fee quote, and an audit plan that matches the new G.S.R. 880(E) thresholds. Call +91 945 945 6700, WhatsApp +91 945 945 6700, or email hello@patronaccounting.com. Free consultation. We respond within 2 hours during business hours.