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Cost audit applicability checker

Two questions that are constantly run together: must this company keep cost records, and must those records be audited? Rule 3 sets one sector gate and a ₹35 crore line for the records; Rule 4 then adds a twin turnover test — ₹50 Cr / ₹25 Cr for regulated sectors, ₹100 Cr / ₹35 Cr for the rest — plus the export, SEZ and captive-power exemptions that switch off the audit while leaving the records obligation standing.

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Sector — the Rule 3 gate

Which table of Rule 3 covers the company’s goods or services?

Industry

Table B runs to thirty-plus entries defined by Central Excise Tariff headings rather than plain industry names. The list above covers the ones most often met in practice — confirm your product against the CETA codes in the rule itself before concluding either way.

Turnover — immediately preceding financial year

Overall turnover from all products and services₹120 Cr

₹0₹500 Cr+

Aggregate turnover of the individual product/service for which cost records are required₹40 Cr

₹0₹500 Cr+

Rule 3 turns on the first figure alone (₹35 crore or more). Rule 4 needs both — ₹100 Cr overall and ₹35 Cr on the covered product or service — for a Table B company.

Exclusions and exemptions

Micro or small enterprise under the MSMED Act 2006?

Proviso to Rule 3 — takes the company outside the rules altogether

Export revenue in foreign exchange above 75% of total revenue?

Rule 4(3)(i) — exempts the audit, not the records

Operating from a special economic zone?

Rule 4(3)(ii) — exempts the audit, not the records

Generating electricity for captive consumption via a Captive Generating Plant?

Rule 4(3)(iii), inserted 2016 — exempts the audit, not the records

Why this matters in audit

Cost audit turns up in the statutory file, and again at clause 37 of Form 3CD

The statutory auditor has to know whether a cost audit was carried out and what it said; the tax auditor has to report it. CORAA keeps the applicability tests and their conclusions in the working file, so a missed CRA-2 shows up in review rather than in next year's notice.

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Working through the same company’s other audit obligations? Run the Section 138 internal audit checker next — a different threshold set on the same preceding-year figures.

How cost records and cost audit applicability are determined

Section 148 of the Companies Act, 2013 lets the Central Government direct that particulars relating to the utilisation of material or labour, or other items of cost, be included in the books of account of specified classes of companies, and further direct that those cost records be audited. Both directions are given through the Companies (Cost Records and Audit) Rules, 2014. The two obligations are separate and must be tested separately — a company can be required to maintain cost records and yet not be required to have them audited.

Rule 3 decides the records. It is a sector gate first: the company must produce goods or provide services listed in Table A (regulated sectors — telecommunication services; generation, transmission, distribution and supply of electricity; petroleum products; drugs and pharmaceuticals; fertilisers; and sugar and industrial alcohol) or in Table B (a much longer non-regulated list defined largely by Central Excise Tariff headings, covering cement, iron and steel, base metals, chemicals, textiles, paper, tyres, construction, port and aeronautical services, health and education services and more). If the sector gate is passed and the overall turnover from all products and services was ₹35 crore or more in the immediately preceding financial year, cost records must be included in the books in the form prescribed by Form CRA-1. A proviso to Rule 3 takes companies classified as micro or small enterprises under the MSMED Act, 2006 outside the rules altogether.

Rule 4 then decides the audit, and it needs two limbs satisfied at once. For a Table A company, Rule 4(1) requires cost audit where the overall turnover from all products and services in the immediately preceding financial year was ₹50 crore or more AND the aggregate turnover of the individual product or service for which cost records are required was ₹25 crore or more. For a Table B company, Rule 4(2) sets the same structure at ₹100 crore and ₹35 crore. Crossing only the overall-turnover limb is not enough. Rule 4(3) then carves three exemptions out of the audit requirement: a company whose revenue from exports in foreign exchange exceeds 75% of total revenue; a company operating from a special economic zone; and, since the Companies (Cost Records and Audit) Amendment Rules 2016 (G.S.R. 695(E), 14 July 2016), a company engaged in generation of electricity for captive consumption through a Captive Generating Plant. Each of these exempts the audit only — the Rule 3 records obligation survives.

Worked example — records required, audit not

A cement manufacturer (Table B) had overall turnover of ₹92 crore in the immediately preceding financial year, of which ₹61 crore came from cement. It is not an MSME, does not operate from an SEZ, and exports nothing.

Inputs

SectorCement — Table B (non-regulated)

Overall turnover₹92 crore (≥ ₹35 Cr ✓ for records; below ₹100 Cr ✗ for audit)

Covered-product turnover₹61 crore (≥ ₹35 Cr ✓)

Rule 4(3) exemptionsNone

Output

Cost records (Rule 3)Required — maintain in Form CRA-1

Cost audit (Rule 4(2))Not required this year

ReasonOverall turnover is below the ₹100 crore limb

Next yearRetest — ₹100 Cr overall and ₹35 Cr on cement both need to be met

The product-level limb is comfortably met at ₹61 crore, but Rule 4(2) is conjunctive: both the ₹100 crore overall figure and the ₹35 crore product figure must be reached. At ₹92 crore overall the company falls short, so no cost audit this year — while the cost records themselves remain fully mandatory, because Rule 3 only asks for ₹35 crore of overall turnover.

Common mistakes

Treating cost records and cost audit as one decision

They are two tests with different thresholds. Rule 3 needs ₹35 crore of overall turnover and a listed sector. Rule 4 needs ₹50 Cr/₹25 Cr (Table A) or ₹100 Cr/₹35 Cr (Table B). A company below the audit line still has a live, year-round obligation to maintain cost records in Form CRA-1.

Reading a Rule 4(3) exemption as an exemption from cost records

The export, SEZ and captive-power carve-outs are worded as exemptions from the requirement of cost audit. A 100% export-oriented unit in the covered sectors above ₹35 crore still maintains cost records — it simply does not have them audited.

Applying only the overall-turnover limb of Rule 4

Rule 4(1) and 4(2) are conjunctive. A large diversified group company can be well over the ₹100 crore overall figure yet outside cost audit because the covered product line itself never reaches ₹35 crore. Compute the product-level aggregate separately and keep the working.

Testing the current year’s turnover

Every threshold in Rules 3 and 4 runs on the immediately preceding financial year. The cost auditor for a year has to be appointed on the strength of the year before — which is why the CRA-2 outer limit is 180 days from the start of the financial year being audited, not something you can address after the year closes.

Appointing the statutory auditor as cost auditor

Section 148(3) requires the cost audit to be conducted by a Cost Accountant in practice, and expressly excludes the auditor appointed under Section 139 from being appointed as cost auditor. It is a distinct appointment, by Board resolution, with remuneration ratified by the members.

Missing CRA-2 because the Board met late

The CRA-2 deadline is the earlier of 30 days from the Board meeting making the appointment and 180 days from the commencement of the financial year. A Board that appoints the cost auditor in, say, the eighth month has already breached the second limb — the earlier-of test cannot be reset by holding the meeting later.

Deciding Table B membership by industry name alone

Table B is largely defined by Central Excise Tariff Act headings rather than by the ordinary name of an industry. Two products a business would describe with the same word can sit on different sides of the line. Match the actual CETA heading of the product before concluding that a company is in or out.

Frequently asked questions

What is the turnover limit for maintaining cost records?+

Under Rule 3 of the Companies (Cost Records and Audit) Rules 2014, a company engaged in the production of goods or provision of services listed in Table A or Table B must maintain cost records if its overall turnover from all products and services was ₹35 crore or more during the immediately preceding financial year. Companies classified as micro or small enterprises under the MSMED Act 2006 are outside the rules.

When is a cost audit mandatory?+

For a Table A (regulated sector) company, where overall turnover from all products and services in the immediately preceding financial year was ₹50 crore or more and the aggregate turnover of the individual product or service for which cost records are required was ₹25 crore or more. For a Table B (non-regulated) company, the same twin test applies at ₹100 crore and ₹35 crore. Both limbs must be met.

Which are the regulated sectors in Table A?+

Telecommunication services; generation, transmission, distribution and supply of electricity; petroleum products; drugs and pharmaceuticals; fertilisers; and sugar and industrial alcohol.

Who is exempt from cost audit?+

Rule 4(3) exempts a company whose revenue from exports in foreign exchange exceeds 75% of its total revenue; a company operating from a special economic zone; and a company engaged in generation of electricity for captive consumption through a Captive Generating Plant, as defined in the Electricity Rules 2005. These exemptions apply to the cost audit only — cost records under Rule 3 must still be maintained.

Can the statutory auditor be appointed as the cost auditor?+

No. Section 148(3) requires the cost audit to be conducted by a Cost Accountant in practice, appointed by the Board, and provides that the auditor appointed under Section 139 shall not be appointed for conducting the audit of cost records.

What are Forms CRA-1, CRA-2, CRA-3 and CRA-4?+

CRA-1 prescribes the form in which cost records are maintained. CRA-2 is the notice of appointment of the cost auditor filed with the Central Government. CRA-3 is the cost audit report submitted by the cost auditor to the Board. CRA-4 is the company’s filing of that report with the Central Government in XBRL format.

What is the due date for filing the cost audit report?+

The cost auditor must submit the CRA-3 report to the Board within 180 days from the closure of the financial year, and the company must then file it with the Central Government in Form CRA-4 within 30 days of receiving it, along with full information and explanation on every reservation or qualification contained in the report.

By when must Form CRA-2 be filed?+

Within 30 days of the Board meeting in which the cost auditor is appointed, or within 180 days of the commencement of the financial year, whichever is earlier.

Does cost audit applicability affect the tax audit?+

Yes, as a reporting matter. Form 3CD requires the tax auditor to report whether a cost audit was carried out and to give details of any disqualification or disagreement on any matter, item, value or quantity as may be reported or identified by the cost auditor. Establishing applicability early avoids a scramble at the tax audit stage.

Authoritative sources

MCA

Companies Act, 2013 — Section 148 — Empowers the Central Government to direct inclusion of cost particulars in the books of specified companies and to direct audit of those records; Section 148(3) requires a Cost Accountant in practice and bars the Section 139 statutory auditor from the cost audit.

MCA

Companies (Cost Records and Audit) Rules, 2014 — Rule 3 sets the Table A / Table B sector gate, the ₹35 crore records threshold and the micro/small enterprise proviso. Rule 4 sets the twin audit thresholds — ₹50 Cr/₹25 Cr for Table A and ₹100 Cr/₹35 Cr for Table B — and the Rule 4(3) export, SEZ and captive-generation exemptions. Rule 5 covers maintenance in Form CRA-1 and Rule 6 the CRA-2, CRA-3 and CRA-4 timelines.

MCA

Companies (Cost Records and Audit) Amendment Rules, 2016 — G.S.R. 695(E) — Notified 14 July 2016; inserted the captive-generating-plant exemption into Rule 4(3), by reference to the definition in the Electricity Rules 2005.

Parliament

ICMAI — Institute of Cost Accountants of India — The statutory body under the Cost and Works Accountants Act 1959 whose practising members conduct cost audits; publishes the cost auditing standards and guidance applied to the CRA-3 report.

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

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Last reviewed: 2026-08-20 · For informational purposes only — not professional advice.