The Ministry of Corporate Affairs (MCA) recently expanded the definition of small and medium businesses (SMCs) by raising the turnover and borrowing limits.
- As per the new definition, SMC is an unlisted company, a bank, an insurance or a financial institution with sales up to Rs 250 crore and borrowings up to Rs 50 crore.
- The earlier threshold for sales was Rs50 crore and that for borrowings was Rs10 crore.
- Now, SMCs are permitted to avail number of exemptions under Company (Accounting Standards) Rules 2021. It will reduce complexity of regulatory filings for smaller firms.
- The Companies (Accounting Standards) Rules, 2021, will be effective 1 April, 2021.
- The accounting standards for SMC, which were earlier notified in December 2006 and amended from time to time, are much simpler as compared to Indian Accounting Standards.
Companies classified as SMCs:
- Banks, insurance companies, financial institutions, and listed companies cannot be classified as SMCs.
- SMC which is a holding company or subsidiary company of a non-SMC will not qualify as a SMC.
Exemptions available to SMCs:
- They have been completely exempted from filing cash flow statements and providing segmental break up of their financial performance.
- They can avail partial reporting exemptions in areas like reporting on employee benefits obligations. For instance, on pensions.
- They are not only exempted from providing detailed analysis of benefit obligations to employees but they are also exempted from reporting diluted earnings per share in their filings.
- This move will promote ease of doing business for firms which are included under definition of SMC.
About Small and medium-sized enterprises (SMEs):
- SMEs are businesses whose personnel numbers are kept below certain limits.
- SMEs sometimes outnumber big companies by wide margin and employ more people. For instance, Australian SMEs accounts for 98% of all Australian businesses produce one-third of GDP and employ 4.7 million people.
SMEs are also responsible for driving innovation and competition across different sectors.