SMC Exemptions 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.
Appendix XII sets out the SMC exemptions — AS 17 disapplied entirely, and defined relaxations in AS 15, AS 19, AS 20, AS 28, AS 29 and AS 25 — against a base of twenty standards that apply in full to every company.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. The exemptions below flow from the MCA notification dated 23 June 2021 and apply to companies other than those following Ind AS; for Ind AS applicability, refer to the MCA notification dated 16 February 2015.
Standards applicable in their entirety to companies
| AS | Title | AS | Title |
|---|---|---|---|
| 1 | Disclosures of Accounting Policies | 13 | Accounting for Investments |
| 2 | Valuation of Inventories | 14 | Accounting for Amalgamations |
| 3 | Cash Flow Statements | 16 | Borrowing Costs |
| 4 | Contingencies and Events Occurring After the Balance Sheet Date | 18 | Related Party Disclosures |
| 5 | Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies | 21 | Consolidated Financial Statements |
| 7 | Construction Contracts | 22 | Accounting for Taxes on Income |
| 9 | Revenue Recognition | 23 | Accounting for Investments in Associates in CFS |
| 10 | Property, Plant and Equipment | 24 | Discontinuing Operations |
| 11 | The Effects of Changes in Foreign Exchange Rates | 26 | Intangible Assets |
| 12 | Accounting for Government Grants | 27 | Financial Reporting of Interest in Joint Ventures |
Note what is in this list: AS 3 Cash Flow Statements, AS 18 Related Party Disclosures, AS 20 Earnings Per Share (in part) and AS 24 Discontinuing Operations all apply to an SMC. Every one of those four is disapplied in its entirety for a non-company MSME. The SMC exemptions are a far shorter list than the relaxations available to a firm or a trust of the same size.
The one complete exemption
Accounting Standards not applicable to SMCs in their entirety: AS 17, Segment Reporting. That is the whole list. Every other standard applies, in full or subject to the specific relaxations below.
AS 15, Employee Benefits
The relaxations run to four paragraphs of the standard:
- Paragraphs 11 to 16, to the extent they deal with recognition and measurement of short-term accumulating compensated absences which are non-vesting — that is, absences for which employees are not entitled to cash payment for unused entitlement on leaving;
- Paragraphs 46 and 139, which deal with discounting of amounts that fall due more than 12 months after the balance sheet date;
- Paragraphs 50 to 116 (recognition and measurement) and 117 to 123 (presentation and disclosure) in respect of defined benefit plans; and
- Paragraphs 129 to 131 in respect of other long-term employee benefits.
Both of the last two SMC exemptions carry the same rider: "such companies should actuarially determine and provide for the accrued liability … by using the Projected Unit Credit Method, and the discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78", and for defined benefit plans "should disclose actuarial assumptions as per paragraph 120(l)". An SMC still needs an actuarial valuation on the Projected Unit Credit Method. What it is relieved of is the full recognition, measurement and disclosure apparatus around it — not the valuation itself. This is exactly where the non-company MSME relief diverges: an MSME may use some other rational method instead.
The other five relaxations
| Standard | Relaxation |
|---|---|
| AS 19, Leases | Paragraphs 22(c), (e) and (f); 25(a), (b) and (e); 37(a) and (f); and 46(b) and (d) relating to disclosures are not applicable |
| AS 20, Earnings Per Share | Disclosure of diluted earnings per share — both including and excluding extraordinary items — is exempted. Basic EPS remains |
| AS 28, Impairment of Assets | May measure "value in use" on the basis of a reasonable estimate instead of the present value technique; if so, provisions such as the discount rate do not apply, and paragraph 121(g) need not be disclosed |
| AS 29, Provisions, Contingent Liabilities and Contingent Assets | Paragraphs 66 and 67 relating to disclosures are not applicable |
| AS 25, Interim Financial Reporting | Does not require a company to present an interim financial report; it applies only if a company is required or elects to prepare one. Only certain Non-SMCs are required by regulators — for example quarterly financial results required by SEBI — so the recognition and measurement requirements apply to those Non-SMCs for preparing interim financial results |
Three of the six SMC exemptions — AS 19, AS 20 and AS 29 — are disclosure-only. AS 28 is a measurement concession. AS 25 is not an exemption at all in substance: the standard is conditional for every company, and SMC status is simply a good proxy for not being required to publish interim results.
Worked example
| Item in an SMC's financial statements | Treatment |
|---|---|
| Segment information | Not required — AS 17 disapplied |
| Gratuity liability of Rs 84,00,000 | Actuarially determined on the Projected Unit Credit Method, government bond discount rate, paragraph 120(l) assumptions disclosed |
| Non-vesting leave encashment | Paragraphs 11 to 16 recognition and measurement relaxed |
| Diluted EPS | Not disclosed; basic EPS still disclosed |
| Impairment testing of a plant | Value in use may be a reasonable estimate; paragraph 121(g) not disclosed |
| Cash flow statement | Required — AS 3 is not among the SMC exemptions |
| Related party disclosures | Required — AS 18 applies in full |
| Notes to accounts | Carry the SMC declaration from instruction 1.1 of Appendix XI |
Audit checklist
- Confirm SMC status and the rule 5 two-period wait before allowing any of the SMC exemptions.
- Check that AS 3, AS 18, AS 21 to AS 24, AS 26 and AS 27 have been applied in full.
- Confirm the actuarial valuation exists and uses the Projected Unit Credit Method and a government-bond discount rate.
- Check paragraph 120(l) actuarial assumptions are disclosed.
- Confirm basic EPS is disclosed even where diluted EPS is omitted.
- Where value in use is a reasonable estimate, check the consequential omissions are consistent.
- Check the note declaring SMC status and any standard-by-standard partial availing disclosure.
- Ask whether any regulator requires interim financial results before treating AS 25 as inapplicable.
Common mistakes
- Omitting the cash flow statement, which is a non-company MSME relief and not one of the SMC exemptions.
- Skipping the actuarial valuation for gratuity.
- Omitting basic EPS along with diluted EPS.
- Dropping AS 18 related party disclosures.
- Availing part of the relief without the standard-by-standard disclosure.