Relaxation in Accounting Rules for Small and Medium Companies in India

Date of Approval – 23 June 2021
• Effective Date of Implementation of Accounting Rules – 1 April 2021
• Legal Framework – The Companies Act 2013 | Companies (Accounting Standards) Rules, 2021
• Government Authority – Ministry of Corporate Affairs (MCA), Government of India
• Web-link – Copy of Accounting Rules in India

Key Client Questions
• Who is a Small & Medium Sized Company (SMC) in India?

– The new definition of SMC – Unlisted company having following financial thresholds:
– Sales / Turnover – Upto INR 2.5 Billion (Old rule – INR 500 Million)
– Borrowings – Upto INR 500 Million (Old rule – INR 100 Million)

– The thresholds are to be considered as at the end of previous accounting year for application in
the current year.

– The Company should not be a holding or subsidiary of a non-SMC company

– Not applicable on SMCs which are banks, financial institutions, insurance firms or holding

• Why there was a need for a new definition of SMC?

– With the introduction of new micro, small and medium enterprises (MSME) rules in India, there
was a need to align the definitions of small and medium enterprises under the Company law with the
definition under the MSME law.

– The updated definition of SMC in the Company law has made accounting and financial reporting
easier of SMC / MSMEs.

• What does it mean for Japanese and other non-Japanese companies in India?

– Simple and less complex accounting rules and standards
– Financial disclosure requirements in the annual financial statements are lesser for SMCs.
– Relaxation in accounting compliance requirements and therefore, there will be an ease of doing
business in India for Japanese and non-Japanese companies falling under the definition of SMC.

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