In a significant move to reduce the regulatory burden on the country’s smallest corporate entities, the Ministry of Corporate Affairs (MCA) is actively considering a proposal to exempt companies with an annual turnover of up to ₹1 crore from the mandatory statutory audit requirement.
As of March 19, 2026, the proposal is in the “active consideration” stage. If approved, it would represent the first-ever turnover-based carve-out for statutory audits since the enactment of the Companies Act, 2013.
The Current vs. Proposed Framework
Under existing laws, every registered company in India—including One Person Companies (OPCs) and micro-enterprises—is legally required to appoint a Chartered Accountant (CA) and undergo an annual statutory audit, regardless of its size, profit, or operational scale.
| Feature | Current Requirement | Proposed Change (2026) |
| Applicability | Mandatory for all companies. | Exemption for firms with turnover ≤ ₹1 Crore. |
| Legal Basis | Section 139, Companies Act 2013. | Proposed Amendment to Section 139. |
| Audit Focus | Complete review of financial health. | Selective/Self-declaration for micro-firms. |
| Tax Alignment | Differs from Income Tax thresholds. | Aligned with Section 44AB (Income Tax). |
Rationale: Why the Change?
The government’s push for this reform is driven by the “Ease of Doing Business” agenda, specifically targeting the MSME (Micro, Small, and Medium Enterprises) sector:
- Reducing Compliance Costs: For a company with a ₹50 lakh turnover, audit fees and administrative overhead can be disproportionately high.
- Limited Value Addition: MCA officials have noted that audits of micro-firms rarely uncover material lapses or fraud, often resulting in “clean reports” that offer minimal incremental oversight.
- Harmonization: The ₹1 crore limit aligns with the current threshold for Tax Audits under the Income Tax Act (where many small businesses are already exempt if they meet certain digital transaction criteria).
The “Compliance Vacuum” Debate
While the industry has largely welcomed the proposal, it has sparked a heated debate within the accounting and governance community. The Institute of Chartered Accountants of India (ICAI) and various experts have raised concerns:
- Weakened Oversight: Critics argue that if a firm is exempt from both statutory and tax audits, there is no independent professional verification of its financial integrity.
- Rise of Shell Companies: There are fears that unscrupulous entities may split their operations into multiple small “micro-firms” to stay below the ₹1 crore limit and avoid scrutiny.
- Credit Access: Banks and lenders heavily rely on audited financial statements to grant loans. Moving to an unaudited model might make it harder for micro-firms to secure formal credit.
Recent Update (March 19, 2026)
Reports indicate the government may be reconsidering the scope of the exemption. Due to the concerns over misuse and weak oversight, the Ministry is exploring “risk-based” audits or potentially reducing the threshold from the proposed ₹1 crore to a lower figure in the final draft.
