Budget 2021: 2 lakh firms to benefit from revision in definition of small companies, says FM Sitharaman

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Updated: February 01, 2021 7:49 PM

Union Budget 2021 India: While the capital base limit is proposed to be increased to Rs 2 crore, the turnover threshold is also proposed to be enhanced from Rs 2 crore to Rs 20 crore.

The latest workshop is expected to expedite the process.The latest workshop is expected to expedite the process.

Indian Union Budget 2021-22: Finance Minister Nirmala Sitharaman on Monday proposed revising the definition of small companies by enhancing the paid-up capital base from the existing limit of Rs 50 lakh. The move is likely to get more companies under the ‘small’ category and benefit them in terms of the compliance requirements. While the capital base limit is proposed to be increased to Rs 2 crore, the turnover threshold is also proposed to be enhanced from Rs 2 crore to Rs 20 crore. “I propose to revise the definition under the Companies Act, 2013 of small companies by increasing the threshold for paid-up capital from not exceeding Rs 50 lakh to not exceeding Rs 2 crore and turnover from not exceeding Rs 2 crore to not exceeding Rs 20 crore. This will benefit more than 2 lakh companies in easing their compliance requirements,” Sitharaman said.

“Raising the threshold for the qualification of small companies will enable more companies to take benefit of lesser compliance such as fewer number of mandatory board meetings, rotation of statutory auditors, exemption from the preparation of cash flow statements, etc. thereby facilitating ease of doing business in India,” Anish Shah, Associate Partner – Transaction Tax, BDO India told Financial Express Online.

Also read: Budget 2021: FM Sitharaman proposes to incentivise OPC setup to benefit startups; removes capital limits

“Many companies will now get incrementally covered under the definition of “Small Companies” and will be subjected to lesser compliances under Companies Act 2013, on matters including the conduct of board meeting, exemption from auditor rotation, relaxations on internal financial control reporting, relaxed provisions on annual return and financial statements and lesser penalties, etc.,” said Madhu Sudan Kankani, Partner, Deloitte India. Importantly, the government had last year revised the MSME definition amid measures taken to reprieve businesses of the Covid impact. For micro-enterprises, the limit for investment and turnover was increased to Rs 1 crore and Rs 5 crore respectively while for small enterprises, the investment and turnover limit was increased from Rs 1 crore and Rs 5 crore respectively to Rs 10 crore and Rs 50 crore. Likewise, for medium enterprises, the limit for investment was increased to Rs 50 crore and for turnover, the limit was increased to Rs 250 crore. Sitharaman in her third budget speech also proposed to set-up an asset reconstruction and management company for banks’ stressed assets. The minister also noted that the government will also strengthen that the National Company Law Tribunal (NCLT) framework.

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