CARO Applicability on Small Company

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ASHUTOSH NAMDEV (Querist)
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27 January 2024 Dear Experts,

As we know
CARO 2020 are not applicable on small company (PUSC less than or equal to ₹ 4 crore and with a last reported turnover which is less than or equal to ₹ 40 crore). So is it mandatory for a small company to be registered under MSME or any other for the above exemption?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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06 July 2024 No, it is not mandatory for a small company to be registered under MSME (Micro, Small, and Medium Enterprises) to qualify for the exemption from CARO (Companies Auditor's Report Order) 2020 reporting requirements. The exemption from CARO 2020 applies based on specific financial thresholds of the company, namely:

1. Paid-up capital less than or equal to ₹ 50 lakh,
2. Borrowings less than or equal to ₹ 1 crore, and
3. Turnover less than or equal to ₹ 10 crore.

Additionally, for small companies specifically, the thresholds are:

- Paid-up capital less than or equal to ₹ 4 crore, and
- Turnover less than or equal to ₹ 40 crore.

If a company meets these financial criteria, it is exempt from certain reporting requirements under CARO 2020, regardless of whether it is registered under MSME or any other registration category. However, MSME registration can provide other benefits and incentives, such as priority sector lending, subsidies, and easier access to government schemes, but it is not a prerequisite for CARO 2020 exemption based on financial thresholds alone.

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