Cash Flow Statement explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The exemption is not in a rule about accounts. It is in the definition of what a financial statement is.
The exemption
As per Section 2 (40), exemptions have been granted to small company, One Person Company and dormant company from preparing Cash Flow Statement. Therefore, it is not mandatory for a small company to prepare Cash Flow Statement.
Section 2(40) defines "financial statement". Section 129 then requires the financial statements to give a true and fair view, section 134 requires them to be signed, section 136 requires them to be sent to members, and section 137 requires them to be filed.
Put the exemption in the definition and it flows through every one of those. For a small company, a one person company or a dormant company, the cash flow statement is simply not part of what a financial statement is — so there is nothing to prepare, sign, circulate, audit against or file. One amendment, and every downstream obligation adjusts.
The alternative drafting — a separate exemption in section 129 — would have needed matching carve-outs everywhere else, and any one of them missed would have left a company obliged to circulate a statement it was not required to prepare.
As to why these three classes: the cash flow statement is the most analytical of the primary statements. It reconciles profit to cash, separates operating from investing and financing flows, and is useful precisely because a reader cannot derive it from the balance sheet and profit and loss account alone.
That usefulness assumes a reader who is not otherwise informed. A one person company has one member, who runs the business. A small company has few shareholders, usually the same people as the directors. A dormant company has no significant transactions to report — a cash flow statement for it would be a page of zeroes.
In each case the people the statement would inform already know, and the cost of preparing it is real.
Note that the exemption is defined by the class. A company that ceases to be a small company because it crosses the section 2(85) thresholds must prepare the statement from that point, and those thresholds have been raised since this FAQ was issued.
What a financial statement includes
| Component | Ordinary company | Small company, OPC, dormant company |
|---|---|---|
| Balance sheet | Yes | Yes |
| Profit and loss account | Yes | Yes |
| Cash flow statement | Yes | Not required |
| Statement of changes in equity, where applicable | Yes | As applicable |
| Explanatory notes | Yes | Yes |
Note on currency
The small company thresholds in section 2(85) have been revised upward since this FAQ was issued, so more companies now fall within the exemption than did in 2019. Confirm the current paid-up capital and turnover limits, and remember that a holding company, a subsidiary, a section 8 company and a company governed by a special Act are excluded from the small company definition however small they are.
Common mistakes
- Looking for the cash flow statement exemption in section 129 rather than in the definition.
- Applying it to a subsidiary or a holding company, which cannot be a small company.
- Continuing to rely on it after the company has crossed the thresholds.
- Using the 2019 small company limits rather than the revised ones.