India mulls exempting micro firms under ₹1 crore from statutory audits

Stakeholders have flagged that the move, though well-intentioned, could lead to a rise in shell companies and make monitoring such entities difficult, people familiar with the matter said.

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The proposal may be dropped or the threshold significantly reduced in the final amendments, one of the people said.

The exemption was part of draft changes to the Companies Act being worked on by the corporate affairs ministry.

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Under the current law, all companies in India must appoint an auditor and conduct a statutory audit annually, regardless of size, including one-person companies and micro units.
Businesses with annual turnover of up to ₹1 crore are already exempt from tax audits under Section 44AB of the Income Tax Act. The corporate affairs ministry had proposed aligning statutory audit requirements with these rules to reduce compliance costs of such entities and improve ease of doing business.Also Read: Parliamentary panel urges a ‘golden share’ strategy to protect PSU autonomy if state stakes fall below 51%

Proponents argued that audits of such micro entities rarely detect material lapses, limiting their practical value.

However, several stakeholders, including chartered accountant groups, said statutory audits become more important when tax audits are not required, to avoid a regulatory vacuum.

They warned that even a perceived lack of oversight could encourage misuse by unscrupulous entities.

The Institute of Chartered Accountants of India had also raised concerns with the ministry last year.

“The (exemption) plan is well-intentioned but danger lies in its implementation,” said a senior industry executive.