MCA May Exempt Micro-Entities from Statutory Audit: A Deep Dive The compliance burden on small businesses in India may ease significantly. According to recent reports, the Ministry of Corporate Affairs (MCA) is likely to exempt companies with an annual turnover of up to ₹1 crore from the mandatory statutory audit. This would mark the first time that statutory audit obligations under the Companies Act will be relaxed based on turnover — a major shift in regulatory approach. In this post, we explore: What the current statutory-audit regime requires What the proposed exemption means in practice The rationale driving the change Potential benefits for small businesses Worries and risks flagged by experts What this could mean for business owners, auditors and regulators What is Statutory Audit — and How It Works Now Statutory Audit under the Companies Act Under the current model, every company incorporated under the Companies Act — whether a large corporation or a micro-enterprise — must appoint an auditor and get its accounts audited annually. The purpose of a statutory audit is to provide an independent verification of the company’s financial statements, giving assurance that the books reflect a “true and fair view” of its financial position. For many small businesses — including one-person companies (OPCs) and micro-enterprises — this requirement applies even if turnover is minimal and operations are simple. Distinction from Tax Audit It is important to note statutory audit (under company law) is different from tax audit (under the Income Tax Act, 1961). A tax audit becomes mandatory only when a business’s turnover crosses ₹1 crore (or ₹10 crore under certain cash-transaction conditions) or under other specified thresholds. Thus, many micro-companies with turnover below ₹1 crore were already outside the purview of tax audit — but were still required to undergo statutory audit. The proposed change aims to remove this redundancy for the smallest companies. The Proposed Change: What MCA’s Exemption Entails According to recent media reports and regulatory-circle leaks: The MCA plans to amend Section 139 of the Companies Act, 2013 — the section that mandates audit appointment — to exempt companies with annual turnover up to ₹1 crore from the statutory audit requirement. This will be the first turnover-based carve-out in India’s statutory audit regime. The proposal is expected to be introduced during the next Parliament session (Winter Session). A simple comparison illustrates the shift: Current Regime Proposed Regime (If Amendment Passed) Statutory audit mandatory for every company, irrespective of size/turnover. Statutory audit not required for companies whose annual turnover ≤ ₹1 crore. Why Is MCA Considering This Exemption? 1. Reducing Compliance Burden on Micro-Enterprises A key driver behind this proposed change is the recognition that for micro-enterprises, mandatory audits often impose disproportionately high compliance costs relative to the business size. Many micro-companies operate with minimal accounting complexity and simple business models — audits in such cases often offer limited value addition. Officials reportedly said that audits of very small firms “rarely reveal material issues and add limited practical oversight.” By exempting these firms, MCA aims to simplify regulatory compliance and free up time and resources for business owners to focus on growth. 2. Alignment with Tax Audit Threshold Currently, businesses under ₹1 crore turnover are not automatically subject to tax audit under the Income Tax Act. Aligning statutory audit exemption with existing tax audit thresholds could streamline compliance and reduce redundant audits for micro-entities with small books. 3. Ease of Doing Business & Supporting Micro-Entrepreneurs India’s entrepreneurial ecosystem — especially micro, small and medium enterprises (MSMEs) — could gain from reduced regulatory friction. Removing the audit mandate for the smallest firms may encourage incorporation, formalization and compliance, without discouraging small entrepreneurs under audit burden. This move signals a willingness by the regulators to balance oversight with flexibility, especially for startups and micro-enterprises that are still finding footing. Potential Benefits — What’s in It for Small Businesses If the proposal is enacted, small companies stand to gain significantly. Here are some of the major benefits: 💡 Cost Savings Statutory audits come with audit fees, associated compliance costs, time spent by founders/owners gathering documents, cooperating with auditors, and often additional accounting costs. For micro-enterprises operating on tight margins, this can be a meaningful expense. With the exemption, firms could save those costs — which could be redirected to business operations, expansion, working capital, or other growth initiatives. 🕒 Time and Effort Freed Without audit compliance, business owners and small-business teams can save time other