Pharma Sector: Cost Audit Applicability
If you’re in the pharmaceutical business, cost audit isn’t just a compliance checkbox — it’s a mandatory requirement under specific conditions, especially due to drug pricing controls imposed by the Drug Price Control Order (DPCO). In 2025, pharma remains one of the most tightly regulated sectors under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014.
Cost Audit is Mandatory for Pharma Sector in India
The pharma industry falls under the “regulated sector” category, meaning cost audit becomes compulsory once specified thresholds are met. Whether you’re manufacturing Active Pharmaceutical Ingredients (APIs), formulations, or bulk drugs, this rule could apply to you.
Drug Categories Under Cost Audit
Cost audit applies to companies involved in the manufacturing of:
- Formulations (Tablets, Capsules, Syrups, Injectables)
- Active Pharmaceutical Ingredients (APIs)
- Biological drugs and biosimilars
- Bulk drugs and intermediates
If your company is producing any of these drugs and meets the turnover criteria, maintaining cost records and conducting a cost audit is mandatory.
Turnover Thresholds for Pharma Companies
According to Rule 4 of CRA-1:
| Criteria | Threshold |
|---|---|
| Overall turnover | > ₹50 crore |
| Revenue from covered products | > ₹25 crore |
So, if your pharma company earned over ₹50 crore in FY 2023-24 and at least ₹25 crore from covered drug categories, you must file CRA-2 (auditor appointment) and CRA-3 (cost audit report).
Impact of Export/Import Operations
Many Indian pharma companies have significant exports of formulations and APIs. But did you know?
Even if the drugs are exported, cost audit is still applicable if thresholds are met.
On the flip side, companies importing key raw materials or APIs must carefully track landed cost and margins—making cost records essential for transparency and compliance.
DPCO: Price Control and Costing Go Hand-in-Hand
The National Pharmaceutical Pricing Authority (NPPA) uses costing data to regulate prices under the DPCO, 2013. If your company manufactures scheduled formulations, you’re legally bound to:
- Maintain cost records as per CRA-1
- Justify pricing through actual cost structure
- Submit costing data to regulators upon request
Cost audit thus ensures that no pharma company overcharges beyond approved margins. Failing to comply with CRA regulations can lead to price caps, refunds, or penalties.
