Summary: Companies engaged in specified goods or services must evaluate whether they are required to maintain cost records and whether those records also require a cost audit. These are separate tests under Section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit) Rules, 2014, as amended. Generally, Rule 3 requires covered companies with overall turnover of ₹35 crore or more in the immediately preceding financial year to maintain cost records for specified products or services, subject to exclusions. Rule 4 prescribes separate cost-audit thresholds for regulated and non-regulated sectors: respectively, overall turnover of ₹50 crore and covered-product or service turnover of ₹25 crore; and overall turnover of ₹100 crore and covered-product or service turnover of ₹35 crore. Both relevant thresholds must be met, subject to the applicable exceptions. Cost records are maintained in accordance with CRA-1; where cost audit applies, the company appoints an eligible cost auditor and files CRA-2, the auditor reports in CRA-3, and the company files CRA-4 within the prescribed period. Companies must classify their products and services accurately, use the applicable prior-year turnover, maintain reconciled records and evaluate exemptions separately. This guide explains the compliance framework, illustrative calculations, audit process and practical questions for companies and cost auditors.
- Cost Records and Cost Audit Under Section 148
- Step 1: Identify the Goods and Services Covered by Rule 3
- Step 2: Check the ₹35 Crore Cost Records Threshold
- Step 3: Apply the Separate Cost Audit Thresholds
- Illustration: Cost Records Required but Cost Audit Not Required
- Illustration: Non-Regulated Cost Audit Thresholds Met
- Exceptions to Cost Audit Require a Separate Review
- CRA-1: What Cost Records Should a Company Maintain?
- Appointment, Report and Filing: CRA-2, CRA-3 and CRA-4
- Why CRA-4 Does Not Have One Fixed Due Date for Every Company
- Reconciliation and Governance Controls
- Consequences of Non-Compliance
- Frequently Asked Questions
- Does every company with turnover above ₹35 crore need cost records?
- Does a cost-records obligation automatically mean cost audit is compulsory?
- Which financial year’s turnover is used for the thresholds?
- Are cost records required where a covered product has turnover below ₹35 crore?
- Does an export exemption from cost audit also exempt cost records?
- Who can conduct a statutory cost audit?
- When is CRA-4 due?
- Are the 2011 rules useful for a current-year applicability decision?
- Key Takeaways
Cost Records and Cost Audit Under Section 148
Cost records help a company determine the cost of production or operations, cost of sales and margins for specified products or services. Cost audit provides an independent examination of the prescribed cost records where the law requires it.
The governing framework is Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014, as amended. The historical Companies (Cost Accounting Records) Rules, 2011 and Companies (Cost Audit Report) Rules, 2011 should not be used as the sole basis for deciding current-year applicability. Past-period compliance must be evaluated under the provisions applicable to that period.
For a current compliance assessment, the first distinction is whether a company must maintain cost records; the second is whether it must also get those records audited. Meeting the first test does not automatically mean that the second test is met.
Step 1: Identify the Goods and Services Covered by Rule 3
Rule 3 lists specified industries, products and services in two tables:
- Table A: regulated sectors.
- Table B: non-regulated sectors.
A company should map its actual activities to the description and Customs Tariff Act heading where the rule specifies one. An industry label alone may be insufficient: the exact activity, product, service, tariff heading and relevant qualifications in the entry matter.
Companies with multiple business lines should prepare a product and service mapping, identify which entries are covered, and maintain evidence supporting the classification. The company should revisit the mapping when products, business activities or the rules change.
Step 2: Check the ₹35 Crore Cost Records Threshold
Generally, a company engaged in the specified goods or services must maintain cost records if its overall turnover from all products and services was ₹35 crore or more in the immediately preceding financial year, subject to the applicable exclusions.
The relevant turnover for this initial test is the company’s overall turnover, not merely the turnover of a covered product. Once the company meets the test, the records requirement applies to its covered products or services, even if the turnover of a particular covered product is below ₹35 crore.
For example, if a company’s overall turnover in FY 2025–26 was ₹42 crore and it produced a covered product with turnover of ₹8 crore, the overall threshold is met for the FY 2026–27 assessment. The company must still check the entry’s precise coverage and any applicable exclusion before concluding that records are required.
Rule 3 excludes companies classified as micro or small enterprises under the applicable MSME provision. Foreign companies also require careful review of the rule and its specific exceptions. See the FAQs on maintenance of cost records and cost audit for further background.
Step 3: Apply the Separate Cost Audit Thresholds
Where Rule 3 applies, Rule 4 sets separate thresholds for cost audit. The company must satisfy both the applicable overall-turnover test and the covered-product or service turnover test, subject to the rule’s exclusions.
| Category | Overall annual turnover in immediately preceding FY | Aggregate turnover of covered product(s) or service(s) |
|---|---|---|
| Regulated sector: Table A | ₹50 crore or more | ₹25 crore or more |
| Non-regulated sector: Table B | ₹100 crore or more | ₹35 crore or more |
The covered-turnover test refers to the aggregate turnover of the relevant individual product or products, or service or services, for which cost records are required under Rule 3. When a company has activities in both tables, assess each category against the relevant thresholds and the detailed rules rather than applying one sector’s limits indiscriminately.
Illustration: Cost Records Required but Cost Audit Not Required
A company produces a Table B product. In the immediately preceding financial year, overall turnover was ₹90 crore and turnover from covered products was ₹40 crore. Subject to the entry and exclusions, the ₹35 crore overall threshold for cost records is met. However, the ₹100 crore overall threshold for Table B cost audit is not met. On these facts, cost records are required but cost audit is not triggered.
Illustration: Non-Regulated Cost Audit Thresholds Met
Another company has immediately preceding financial-year overall turnover of ₹120 crore and aggregate turnover from covered Table B products of ₹38 crore. Both relevant thresholds are met. The company should then check whether a specific exception applies and comply with cost audit if it does not.
The turnover tests and exceptions are discussed in cost records and audit under the Companies Act.
Exceptions to Cost Audit Require a Separate Review
Rule 4 contains exceptions to the cost-audit requirement for specified circumstances. They include companies whose revenue from exports in foreign exchange exceeds 75% of total revenue, companies operating from a special economic zone, and the specified captive electricity generation situation. The exact wording and facts must be checked; 75% exactly does not satisfy an “exceeds 75%” test.
An exception from cost audit does not automatically remove a separate obligation to maintain cost records under Rule 3. Mixed SEZ and non-SEZ operations need particular care: ICMAI’s published FAQ distinguishes the SEZ unit from other units and addresses records and audit separately. The classification and turnover computation should be documented and reviewed for the facts of the company.
CRA-1: What Cost Records Should a Company Maintain?
CRA-1 sets out particulars relating to the items of cost to be included in the books of account. Relevant records may cover materials, employee costs, utilities, overheads, depreciation, production, capacity, inventory, sales and other cost elements, as applicable to the activity.
Records should be maintained regularly and in a manner that enables the company to determine per-unit cost of production or operations, cost of sales and margin for relevant products and activities. The records should also support reconciliation with financial accounts and the preparation of required statements.
Maintaining a spreadsheet at year-end without an audit trail may not adequately support the required calculations. Companies should establish the source of each cost, allocation basis, production quantities, unit-level data and review controls throughout the year.
Appointment, Report and Filing: CRA-2, CRA-3 and CRA-4
| Form or action | Responsibility | Normal time limit |
|---|---|---|
| Appointment of cost auditor | Company appoints an eligible cost accountant in practice or eligible firm or LLP | Within 180 days of commencement of the financial year |
| CRA-2 | Company informs the Central Government of the appointment | Within 30 days of the Board meeting or 180 days from commencement of the financial year, whichever is earlier |
| CRA-3 | Cost auditor submits the cost audit report to the Board | Within 180 days from closure of the financial year |
| CRA-4 | Company files the cost audit report with the Central Government in the prescribed XBRL format, with explanations of reservations or qualifications | Within 30 days of receipt of the report, subject to applicable provisions and any valid extension |
The company’s statutory auditor appointed under Section 139 cannot also be appointed as its cost auditor. The company should obtain the cost auditor’s consent and check eligibility and independence. Remuneration should be dealt with under the applicable Board, audit committee and member-ratification requirements.
The Board must consider the cost audit report, particularly reservations or qualifications. The company must furnish the prescribed information and explanations with CRA-4. A casual vacancy has its own prescribed appointment and intimation timelines.
MCA substituted Forms CRA-2 and CRA-4 through the Companies (Cost Records and Audit) Amendment Rules, 2025, effective from 14 July 2025. Use the current MCA form and validation requirements at the time of filing.
Why CRA-4 Does Not Have One Fixed Due Date for Every Company
The cost auditor’s report and the company’s filing are separate events. The normal CRA-4 clock starts when the company receives the cost audit report, not simply on the financial-year closing date or AGM date.
For example, if a company receives the cost audit report on 20 September, the normal filing period is counted from that receipt date under the applicable rule. The company should document actual receipt, monitor the statutory period and check whether a valid extension applies; it should not assume that all companies have an identical calendar deadline.
For practical filing checks, see CRA-4 filing triggers and report checks.
Reconciliation and Governance Controls
Before the cost audit report is finalised, management should reconcile cost accounting data with financial accounts and explain material differences. The process should address revenue, production, stock, overhead allocation, related-party transactions and abnormal or non-recurring costs where relevant.
A practical compliance file should contain the product-to-CTA mapping, turnover workings, exemption analysis, Board approvals, cost auditor consent and appointment, CRA-2 acknowledgement, cost statements, reconciliation, report receipt evidence and CRA-4 filing acknowledgement.
ICMAI’s filing advisory highlights common errors such as incorrect financial-year selection, CTA code classification and mismatches between CRA-2 and CRA-4. See the ICMAI advisory on cost audit filing and product classification.
Consequences of Non-Compliance
Failure to maintain prescribed records, appoint an eligible cost auditor or file the report may attract consequences under the Companies Act and applicable rules, including penalties or additional filing fees where relevant. The consequence depends on the provision breached, the persons responsible, the period and applicable proceedings. Companies should assess exposure and seek professional advice rather than assume that paying a late fee settles every default.
Frequently Asked Questions
Does every company with turnover above ₹35 crore need cost records?
No. The company must also be engaged in goods or services specified in Rule 3, and applicable exclusions must be considered.
Does a cost-records obligation automatically mean cost audit is compulsory?
No. Cost audit has separate sector-specific turnover thresholds and exceptions under Rule 4.
Which financial year’s turnover is used for the thresholds?
The rules refer to the immediately preceding financial year. For FY 2026–27 applicability, review FY 2025–26 turnover and the relevant product or service classification.
Are cost records required where a covered product has turnover below ₹35 crore?
They may be. The cost-records threshold is based on overall company turnover; the covered product’s own turnover is not a separate ₹35 crore condition for that test.
Does an export exemption from cost audit also exempt cost records?
Not automatically. The Rule 4 cost-audit exception and the Rule 3 records obligation must be evaluated separately.
Who can conduct a statutory cost audit?
An eligible cost accountant in practice or eligible firm or LLP of cost accountants may be appointed, subject to the Act, rules and independence requirements. The company’s Section 139 statutory auditor cannot be its cost auditor.
When is CRA-4 due?
Normally within 30 days of the company’s receipt of the cost audit report, subject to the applicable rule and any valid extension.
Are the 2011 rules useful for a current-year applicability decision?
They provide historical context and may be relevant to an earlier reporting period. Current-year applicability should be assessed under the Companies Act, 2013 and the applicable amended 2014 rules.
Key Takeaways
- Identify the company’s covered goods or services before applying turnover limits.
- The ₹35 crore overall-turnover test concerns cost records; audit has separate regulated and non-regulated thresholds.
- Review exclusions and cost-audit exceptions independently; an audit exception does not automatically eliminate cost records.
- Track appointment, CRA-2, CRA-3 and CRA-4 using the correct triggering dates.
- Reconcile cost and financial records and preserve evidence supporting classification and filing decisions.
