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CARO Applicability wrt Small Comapnies

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G RAKESH

Article Assistant

75 Points Posted on 07 November 2023

Dear All,

1. company turnover below 40 crore and

2. PSC < 40 Cr

3. loan from Financial institutions is above 5 crore

weather caro applicable

In my opinion , the said company is small company and hence CARO is not applicable.

Views solicited.

Replies (2)

Quick Summary

This discussion clarifies the applicability of CARO (Companies Auditor's Report Order) for small companies. It explains that a company is considered 'small' if its paid-up capital and turnover are below specific thresholds (currently INR 4 crore and INR 40 crore, respectively). Crucially, CARO 2020 does not apply to small companies, even if their borrowings from financial institutions exceed INR 5 crore. The exemption for private companies has different criteria, but the core definition of a small company exempts it from CARO.

CA Raj Doshi

Practising CA

5649 Points Posted on 07 November 2023

According to section 2(85) of the Companies Act, 2013, a small company means a company that meets the following criteria:

Condition 1: Paid-up capital of the company should not exceed INR 4 Crores; and
Condition 2: Turnover of the company should not exceed INR 40 Crores.

Aashok Kumar Sharma

Finance/Compliance Consultant

75672 Points Posted on 07 November 2026

CARO exemptions:

• CARO 2020 doesn't apply to:

– banking, insurance and Sec 8 companies

– OPCs and small companies (paid-up capital up to Rs 4 crore and turnover up to Rs 40 crore, as revised in 2022)

– private companies (not subsidiaries or holding companies of public companies) with paid-up capital plus reserves up to Rs 1 crore, borrowings from banks or FIs up to Rs 1 crore at any time in the year, and total revenue up to Rs 10 crore.

• With paid-up capital below Rs 4 crore and turnover below Rs 40 crore, the company is a "small company" (unless it's a public company, holding or subsidiary company, or Sec 8). CARO doesn't apply, even though borrowings exceed Rs 5 crore. The borrowing test is only in the private-company exemption, not in the small-company definition.

• So if it's a private small company, CARO isn't applicable.