When a manufacturing or service business exceeds ₹35 crore in annual turnover, it must maintain detailed cost records and assess the applicability of the statutory cost audit under Table A (regulated) and Table B (non-regulated) of the Companies (Cost Records and Audit) Rules, 2014.
Preparing for this shift means replacing fragmented spreadsheets with structured records for material, labour and overheads, ensuring accurate cost tracking and audit readiness.
What are the mandatory rules for maintaining cost records?
Before focusing on audits, companies in notified sectors listed in Tables A and B must maintain detailed cost records once they cross the basic revenue limit, as per the Companies Rules, 2014.
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The baseline turnover rule
A total turnover of ₹35 crore or more in the previous year triggers this rule. The company must also operate in a sector listed under Rule 3 of the Companies Rules, 2014.
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Form CRA-1 compliance
Rule 6 requires eligible companies to maintain detailed, item-wise accounts for materials, labour and overheads in the Cost Records and Audit Form (CRA-1) format. These internal records ensure fair and accurate reporting of costs, sales and margins.
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Universal applicability
This mandate applies to both domestic and foreign companies operating in India that produce goods or provide services covered by the sectors listed in Rule 3.
How does cost audit applicability differ for regulated and non-regulated sectors?
After passing the record-keeping threshold, Section 148 of the Companies Act, 2013, divides audit requirements by sector into Table A (regulated) and Table B (non-regulated).
For regulated sectors
Regulated sectors (Table A), including telecommunications, petroleum products, fertilisers, and certain pharmaceuticals, require a cost audit if:
- The overall annual turnover is ₹50 crore or more, and
- The aggregate turnover of the specific product or service is ₹25 crore or more,
- Provided the company is already required to maintain cost records under the Rules.
For non-regulated sectors
Industries under Table B of Rule 3, such as machinery, steel, and other manufacturing sectors, must undergo a cost audit if:
- The overall annual turnover is ₹100 crore or more, and
- The aggregate turnover of the specific product or service is ₹35 crore or more,
- Subject to the condition that the cost record applicability criteria are already met.
Who is exempt from conducting a statutory cost audit in India?
Even if turnover exceeds the financial threshold, the Ministry of Corporate Affairs (MCA) offers specific exemptions to reduce compliance requirements for certain business models.
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High export revenue
Companies whose revenue from exports (in foreign exchange) exceeds 75% of total revenue are exempt from the audit, provided they fall within non-regulated sectors under Rule 3.
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Special Economic Zones (SEZ)
Businesses operating entirely within an SEZ do not require a statutory cost audit, regardless of turnover.
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Captive power generation
Companies generating electricity solely for captive use are also exempt from audit rules.
What is the process for appointing a cost auditor and filing reports?
Keeping track of compliance timelines is crucial, as missing government deadlines can result in severe fines for the company and its directors.
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Auditor qualifications
Section 148(3) of the Companies Act, 2013, mandates that the auditor must be a Cost Accountant in Practice. They cannot be the company’s existing statutory financial auditor.
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Strict timelines
The appointment must be made within 180 days of the start of the financial year. The company must also send a notice of this appointment to the Central Government using Form CRA-2.
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Reporting structure
The cost auditor submits the final audit report to the Board of Directors in Form CRA-3. The company then forwards this report to the Central Government on Form CRA-4 within 30 days.
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Automating cost auditing
Manually tracking inventory, multi-location data and cost centres to prepare these filings is a major pain point for accountants, making structured systems essential for compliance.
Conclusion
Compliance with cost audit rules is not just about avoiding penalties; it helps businesses gain accurate cost visibility for smarter decisions. Companies should maintain cost records once turnover exceeds ₹35 crore and understand audit thresholds of ₹50 crore for regulated sectors and ₹100 crore for non-regulated sectors.
Be aware of exemptions, appoint an independent Cost Accountant within 180 days, and follow CRA-2, CRA-3 and CRA-4 timelines. Using TallyPrime can simplify cost tracking, manage inventory and generate compliant reports, keeping your business audit-ready and informed.
