Email: sudhanshu@sscoindia.com
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Introduction: Who Needs to Comply with Cost Audit in 2025?

As Indian businesses enter the financial year 2025–26, one area of compliance gaining renewed focus is cost audit applicability under the Companies Act, 2013. Whether you're a manufacturer, exporter, or service provider, understanding whether your company is required to maintain cost records or undergo a cost audit is not just good governance—it’s a legal necessity.

But what exactly is a cost audit?

Cost audit is the independent verification of a company’s cost accounting records. Unlike a financial audit, which focuses on profit, loss, and overall financial health, a cost audit examines the true cost of production, processing, or service delivery. It ensures accuracy in cost allocation, identifies inefficiencies, and confirms compliance with government-prescribed formats and pricing norms.

✅ Why Cost Audit Applicability Matters in 2025

Cost audit isn’t applicable to every company, but it’s mandatory for businesses that meet specific sector and turnover thresholds. Many companies unknowingly fall under the scope of cost audit and fail to comply—leading to hefty penalties and MCA notices.

With growing digitization, MCA’s scrutiny and enforcement of compliance under CRA-1 to CRA-4 have intensified. In 2025, businesses that operate in sectors like:

  • Pharmaceuticals

  • Steel & Cement

  • Power generation

  • Telecommunication

  • FMCG

  • Electrical and electronic equipment

...must pay close attention to the rules around cost audit thresholds and exemptions.

This is where the Companies (Cost Records and Audit) Rules, 2014 come into play.

These rules, notified under Section 148 of the Companies Act, 2013, define:

  • When companies need to maintain cost records (Rule 3)

  • When they are mandated to undergo a cost audit (Rule 4)

🎯 Purpose of This Blog

The goal of this blog is simple yet critical: to provide a clear, updated, and business-friendly explanation of cost audit applicability in 2025.

We’ll cover:

  • Turnover-based thresholds

  • Sector-specific rules (regulated vs non-regulated)

  • Who needs to comply with cost records vs cost audit

  • Which companies are exempt in 2025

  • How SSCOIndia can help you stay compliant

If you’ve ever wondered whether your company should file CRA-1 to CRA-4—or whether you’re legally exempt—this blog is for you.

Legal Basis for Cost Audit Applicability in 2025

The framework for cost audit applicability in India is grounded in Section 148 of the Companies Act, 2013, supported by the Companies (Cost Records and Audit) Rules, 2014, and subsequent MCA notifications.

Let’s break it down so you can understand exactly what applies to your business.

🏛 Section 148 of the Companies Act, 2013

Section 148 empowers the Central Government to:

  • Mandate the maintenance of cost records for specified classes of companies

  • Require certain companies to have their cost records audited by a Cost Accountant in Practice

  • Prescribe the format, method, and timing of cost record maintenance and audit reporting

In short, Section 148 is the legal gateway to cost audit compliance.

Under this section:

  • The Board of Directors must appoint a Cost Auditor within the first 180 days of the financial year (CRA-2)

  • The Cost Auditor must submit a report in CRA-3

  • The Company must file the audit report with the Ministry of Corporate Affairs (MCA) in CRA-4, in XBRL format

📘 Companies (Cost Records and Audit) Rules, 2014

Notified on 30th June 2014, and amended several times (latest via Notification GSR 725(E) dated 20.08.2018), these rules provide the operational blueprint for cost audit.

They are divided into two main parts:

✅ Rule 3 – Applicability of Cost Records

Rule 3 mandates which companies are required to maintain cost records in CRA-1 format.

Applicability is based on:

  • Industry sector (classified into Regulated and Non-Regulated)

  • Turnover threshold (₹35 crore or more from all products/services during the immediately preceding financial year)

Industries are categorized under:

  • Regulated sectors (e.g. pharma, electricity, petroleum, telecom)

  • Non-regulated sectors (e.g. iron & steel, cement, paints, edible oil, paper, machinery)

If your company operates in one of the listed sectors and meets the turnover condition, you must maintain detailed cost records—even if you are exempt from audit under Rule 4.

✅ Rule 4 – Applicability of Cost Audit

Rule 4 determines which companies are required to get their cost records audited.

Here are the key cost audit thresholds for 2025:

🔒 For Regulated Sectors:

  • Overall turnover from all products/services ≥ ₹50 crore

  • AND

  • Turnover of individual product/service under audit ≥ ₹25 crore

🔓 For Non-Regulated Sectors:

  • Overall turnover from all products/services ≥ ₹100 crore

  • AND

  • Turnover of individual product/service under audit ≥ ₹35 crore

If both criteria are met, cost audit becomes mandatory, and you must:

  • Appoint a certified Cost Accountant

  • Submit cost audit reports in CRA-3

  • File the same with MCA via CRA-4

🔄 Notifications and MCA Updates

The Ministry of Corporate Affairs (MCA) releases regular notifications to:

  • Update industry coverage

  • Revise product definitions or turnover limits

  • Clarify procedural timelines

For example, G.S.R. 725(E) updated the coverage of specific HS codes for regulated products, while other updates refined the use of CRA-4 for XBRL reporting.

✅ Businesses should consult the latest MCA circulars or work with compliance experts like SSCOIndia to avoid misinterpretation.

📢 Why This Legal Framework Matters in 2025

With automated MCA scrutiny, non-compliant companies are easily flagged for:

  • CRA-2 delays

  • CRA-3 omissions

  • Invalid CRA-4 XBRL filings

  • Missing cost-to-financial reconciliations

Early assessment of applicability under Rule 3 and Rule 4 can save your business:

  • Money (avoiding fines of ₹25,000 to ₹5,00,000)

  • Time (streamlined audit process)

  • Reputation (strong compliance rating in MCA records)

Step-by-Step Cost Audit Preparation Plan [2025]

Once you’ve determined that your company falls under cost audit applicability for 2025 as per Rule 3 or Rule 4 of the Companies (Cost Records and Audit) Rules, 2014, it’s crucial to prepare thoroughly to ensure smooth compliance.

A well-structured cost audit preparation plan will not only help you avoid penalties but also improve internal cost controls, transparency, and resource efficiency.

Here’s a step-by-step guide to preparing for your next cost audit:

✅ Step 1: Review Cost Audit Applicability

Before diving into cost record maintenance or auditor appointments, confirm your company’s eligibility for cost audit.

A. Determine Sector Type:

  • Regulated sectors include electricity, petroleum, telecom, pharmaceuticals, etc.

  • Non-regulated sectors include iron & steel, cement, textiles, FMCG, etc.

B. Check Turnover Thresholds:

Sector Overall Turnover Product/Service Turnover
Regulated ₹50 crore ₹25 crore
Non-regulated ₹100 crore ₹35 crore

C. Identify Product/Service Eligibility:
Even within eligible companies, only products or services notified under CRA rules require detailed record-keeping and audit.

💡 Tip: Review your HS Code classification and check recent MCA notifications for industry-specific updates.

✅ Step 2: Maintain Cost Records as per CRA-1

Once applicability is confirmed, start maintaining cost records as prescribed in CRA-1 format throughout the financial year.

You must track cost data under:

  • Material cost – Raw material procurement, wastage, returns

  • Employee cost – Salaries, bonuses, statutory benefits

  • Utilities – Power, water, fuel, etc.

  • Overheads – Admin, selling, factory expenses

  • R&D costs, depreciation, pollution control, etc.

Ensure product/service-wise and process-wise classification. If you're managing multiple products or plants, maintain separate ledgers.

💼 Use ERP, Excel-based templates, or cost accounting software for consistency and audit readiness.

✅ Step 3: Reconcile Cost Records with Financial Statements

Before preparing your cost audit report, ensure that cost data aligns with:

  • Financial statements (P&L, Balance Sheet)

  • GST returns

  • Income Tax filings

This is known as cost-to-financial reconciliation, and it’s a mandatory part of the CRA-3 audit report.

📌 Any variance must be explained with valid documentation and justifications.

✅ Step 4: Appoint a Cost Auditor (CRA-2)

Once cost records are maintained, companies must appoint a Cost Auditor within 180 days from the start of the financial year.

To comply with CRA-2:

  • Pass a Board Resolution approving the appointment

  • Ensure the auditor is a Cost Accountant in practice (ICMAI-certified)

  • File Form CRA-2 on the MCA portal with proper attachments

Late appointments often delay CRA-3 and CRA-4 submissions—so plan this early.

✅ Step 5: Prepare Cost Audit Report (CRA-3)

Your appointed auditor will prepare the CRA-3 report after reviewing:

  • Cost records (CRA-1)

  • Supporting documentation

  • Profitability analysis

  • Reconciliation statements

Ensure smooth communication with your auditor and provide:

  • Cost sheets

  • Ledger extracts

  • Plant-wise cost breakdowns

  • Trial balance and general ledgers

The CRA-3 report must be submitted to the company’s Board within 180 days of the end of the financial year.

✅ Step 6: File CRA-4 in XBRL Format

After the CRA-3 report is approved by the Board, the company must file CRA-4 with the MCA using XBRL (Extensible Business Reporting Language) format.

Filing Requirements:

  • Convert CRA-3 to XML/XBRL format using licensed tools

  • Validate and pre-scrutinize using MCA’s validation utility

  • Attach digital signatures (DSC) of directors and auditor

  • File within 30 days of receiving the CRA-3 report

Incorrect formatting or late filing will result in penalties and possible rejections.

✅ Step 7: Keep Supporting Documents Ready

During the audit or any regulatory inspection, your company must produce:

  • Purchase orders, raw material invoices

  • Payroll and employee records

  • Electricity and water bills

  • Production reports, batch logs

  • Stock registers, reconciliation statements

  • GST filings, TDS statements

📦 Keep these organized by product and month, and store digital backups.

Common Mistakes to Avoid During Cost Audit Preparation

Despite best intentions, companies often make avoidable mistakes that delay the audit process or trigger MCA scrutiny. Here’s what you should watch out for:

❌ Mistake #1: Incomplete CRA-1 Formats

Many businesses maintain only partial or inconsistent cost records, missing out:

  • Product-wise classification

  • Monthly breakdowns

  • Overhead segregation

💡 Solution: Use SSCOIndia's CRA-1 cost templates to simplify data entry.

❌ Mistake #2: Late CRA-2 Filing

Delaying auditor appointment means:

  • CRA-3 preparation gets delayed

  • CRA-4 deadline is missed

  • MCA may impose late penalties

💡 Tip: Set internal reminders for CRA-2 at least 30 days before the 180-day deadline.

❌ Mistake #3: Missing Cost vs Financial Reconciliation

CRA-3 requires a reconciliation statement between cost accounts and financial accounts. Failing to prepare this can result in:

  • Report rejection

  • Auditor qualifications

  • MCA follow-ups

💡 Solution: Match cost ledgers with trial balances quarterly.

❌ Mistake #4: Incorrect XBRL Format for CRA-4

Many companies file CRA-4 in the wrong format or with invalid XML files, leading to:

  • Rejection by MCA

  • Additional rework and cost

  • Potential audit exposure

💡 Tip: Always use certified XBRL software or consult filing experts like SSCOIndia.

📢 Final Word

Cost audit compliance isn't just about filing forms—it's about systematic preparation, timely filings, and correct reporting. Following this step-by-step cost audit preparation plan ensures:

  • Regulatory compliance under Section 148

  • Clean CRA-1 to CRA-4 submissions

  • Fewer auditor queries

  • Minimal disruption to business operations

📥 Want to automate your compliance?
✅ Book a free consultation today.

Cost Audit Exemptions in 2025

While many companies fall under the scope of cost audit applicability in India, several classes of businesses are legally exempt from cost audit requirements—even if they operate in notified sectors.

As per the Companies (Cost Records and Audit) Rules, 2014, updated through the latest MCA notifications, the following businesses enjoy cost audit exemptions in 2025:

🏢 1. MSMEs as Defined Under MSMED Act, 2006

Micro, Small, and Medium Enterprises (MSMEs) are exempt from cost audit—even if they operate in regulated or non-regulated sectors.

Criteria for MSME classification as per the MSMED Act:

Type Investment in Plant & Machinery Annual Turnover
Micro Up to ₹1 crore Up to ₹5 crore
Small Up to ₹10 crore Up to ₹50 crore
Medium Up to ₹50 crore Up to ₹250 crore

💡 If your business qualifies as an MSME, you do not need to maintain cost records or undergo cost audit—even if you exceed product-wise revenue thresholds.

✅ Important: You must maintain documentary proof (Udyam Registration) to claim this exemption during MCA scrutiny.

🌍 2. Units Located in SEZs (Special Economic Zones)

Companies that operate entirely within SEZs and have no domestic turnover are also exempt from cost audit. This exemption encourages export-focused manufacturing and industrial development.

However:

  • The exemption applies only if all units of the company are SEZ-based

  • If even one unit operates outside the SEZ, the exemption may not hold

📌 Always validate your SEZ status with revenue and GST filings during audit season.

💱 3. Companies Exporting 75% or More in Foreign Exchange

Another major cost audit exemption applies to companies that generate at least 75% of their revenue from exports (in foreign exchange).

Conditions:

  • The export percentage must be calculated on total turnover

  • Export proceeds must be realized within statutory timelines under FEMA

  • Export invoices and foreign inward remittance certificates (FIRC) must be maintained

💼 Examples:

  • A pharmaceutical exporter with ₹80 crore turnover and ₹65 crore foreign revenue = Exempt

  • A textile company with ₹120 crore turnover and ₹85 crore exports = Exempt

⚠️ Pro Tip: Track your forex realization timelines through FIRC and bank statements.

🆕 4. Newly Incorporated Companies

For the first financial year, newly incorporated companies are exempt from cost audit, even if they cross the turnover thresholds.

✅ This allows startups and first-time manufacturers a grace period to set up their compliance infrastructure.

However:

  • Cost records (CRA-1) may still need to be maintained if turnover > ₹35 crore

  • Cost audit exemption only applies to the first year of operation

Don’t assume continued exemption without reviewing turnover in subsequent years.

Common Misunderstandings Around Applicability

Despite clear cost audit rules, many businesses misinterpret the law—often leading to penalties, delayed filings, or non-compliance notices from the MCA.

Here are the most common errors:

❌ Mistaking Financial Audit for Cost Audit

One of the most frequent misconceptions is assuming that a financial audit satisfies cost audit requirements.

That’s incorrect.

  • Financial audit focuses on revenue, profit, and financial disclosures (under Section 143).

  • Cost audit examines the detailed cost structure of production, services, and pricing (under Section 148).

Each audit has different:

  • Filing forms (CRA-1 to CRA-4 vs AOC-4)

  • Professionals (Cost Accountant vs Chartered Accountant)

  • Reporting obligations

❌ Assuming Exemption Without Formal Verification

Many companies self-exempt from cost audit without:

  • Checking actual export realization

  • Confirming MSME classification

  • Verifying SEZ status

  • Documenting applicability

📌 The MCA does not accept “assumed exemptions.” You must justify exemptions with proper documents during scrutiny or inspection.

❌ Not Tracking Sector-Specific Notifications

MCA regularly updates cost audit applicability through notifications, changing:

  • Sector classification

  • Turnover limits

  • Product coverage based on HS Codes

Failure to stay updated can result in:

  • Non-compliance

  • Missed filings

  • Penalties up to ₹5,00,000

💡 Stay updated with the help of audit experts or subscribe to compliance alerts via SSCOIndia.com.

How SSCOIndia Helps You Determine Applicability and Stay Compliant

At SSCOIndia, we’ve helped hundreds of businesses across India determine their cost audit requirements and achieve 100% timely compliance.

Here’s how we can help your company in 2025:

✅ Free Audit Applicability Review

We assess your:

  • Annual turnover

  • Product/service revenue

  • Sector classification (regulated/non-regulated)

  • Export status

  • MSME/SEZ documentation

Based on these inputs, we determine:

  • Whether CRA-1 to CRA-4 is applicable

  • Whether you're legally exempt

  • Which deadlines you must meet

✅ Turnover & Product Mapping

We map your product-wise revenue to relevant HS Codes and cross-check them against:

  • MCA sector lists

  • CRA rules

  • SEZ/Export norms

This helps avoid incorrect exemptions and ensure audit preparedness.

✅ Sector-Specific Compliance Guidance

We have domain experts for:

  • Pharmaceuticals

  • FMCG

  • Cement

  • Iron & Steel

  • Medical devices

  • Textile & apparel

  • Electrical equipment

Our audit consultants help you:

  • Structure CRA-1 formats

  • Reconcile cost and financials

  • Prepare for CRA-3 and CRA-4 filings

✅ End-to-End CRA-1 to CRA-4 Support

We provide full-service cost audit support, including:

  • Auditor appointment via CRA-2

  • Cost audit report preparation (CRA-3)

  • CRA-4 XBRL conversion and MCA filing

  • GST and income tax reconciliation

You don’t have to worry about formats, deadlines, or MCA compliance—we handle it all.

Conclusion & Call to Action

As we’ve seen, cost audit applicability in 2025 depends on a number of factors—sector, turnover, export ratio, business structure, and regulatory notifications.

Misunderstanding the rules can lead to:

  • Missed audit obligations

  • Incorrect exemptions

  • CRA form rejections

  • MCA penalties and legal scrutiny

That’s why it’s essential to review your company’s cost audit eligibility every financial year.

Whether you’re a mid-size manufacturer or an export-focused business, SSCOIndia can help you navigate cost audit rules with clarity and confidence.

📥 Call to Action

✅ Book a Free Cost Audit Eligibility Review Today
Let our experts evaluate your business and guide you through every compliance step.

🔗 Visit: https://sscoindia.com
📧 Email: contact@sscoindia.com
📞 Call: +91-8622086220

SSCOIndia — Your Compliance Partner for Hassle-Free Cost Audit & CRA Filings in 2025.
Stay Ahead. Stay Audit-Ready.

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