CARO 2020 Applicability: Revised Small Company Limits
The revised definition of a Small Company, effective from 1 December 2025, has increased the thresholds used to determine whether a company qualifies for Small Company status. This is particularly relevant to companies and statutory auditors assessing CARO 2020 applicability during the 2026 audit cycle.
Revised Small Company Limits
A company should check the following thresholds:
- · Paid-up Share Capital: Up to ₹10 crore
- · Turnover: Up to ₹100 crore in the immediately preceding financial year
- · Other applicable conditions and exclusions under Section 2(85) must also be satisfied.
Meeting the financial thresholds alone does not automatically make every company a Small Company. The other statutory conditions must also be considered.
Impact on CARO 2020
A company that qualifies as a Small Company is outside the applicability of CARO 2020.
This means the statutory auditor does not need to provide CARO 2020 reporting for that company, subject to the applicable legal framework.
Companies that do not qualify as Small Companies should not assume that CARO 2020 automatically applies. The auditor should separately examine whether another applicable exemption is available.
Why This Matters for 2026 Audits
The revised limits can bring additional companies within the Small Company framework.
For companies and finance teams, this makes it important to reassess eligibility before the statutory audit is finalised. Auditors should also confirm the company's status and determine the appropriate reporting requirements.
Other Small Company Compliance Benefits
Small Companies may receive various compliance relaxations under the Companies Act and applicable rules. These benefits are separate from CARO 2020 and should not be presented as CARO exemptions.
Depending on the applicable provisions, these may include relaxations relating to financial statements, board meetings, annual returns and specified penalties.
Therefore, businesses should assess each benefit independently rather than assuming that qualifying as a Small Company automatically provides every available exemption.
Action Required
Companies should:
- 1. Check whether paid-up share capital is within the revised ₹10 crore limit.
- 2. Check turnover for the immediately preceding financial year against the ₹100 crore limit.
- 3. Verify all other conditions and exclusions under Section 2(85).
- 4. If the company is not a Small Company, check whether another CARO 2020 exemption applies.
- 5. Discuss the final CARO applicability position with the statutory auditor before finalising the audit report.
Conclusion
The revised Small Company thresholds effective from 1 December 2025 make CARO 2020 applicability an important compliance check for the 2026 audit cycle.
Businesses should review their Small Company status carefully rather than relying solely on the capital and turnover limits. The applicable CARO exemption and other Small Company compliance benefits should be assessed separately under the relevant provisions.
Contact BSA & Company for expert guidance.