Introduction: Sector-Specific Cost Audit Rules in 2025

Cost audit applicability in 2025 depends heavily on your industry sector—and that’s not just a regulatory phrase. It’s a critical checkpoint for every company operating in India. Whether you're running a pharmaceutical firm, managing an energy corporation, or heading a fast-growing FMCG brand, the applicability of cost audit under Indian law is not “one-size-fits-all.”

The Ministry of Corporate Affairs (MCA) has clearly laid out sector-wise rules and thresholds for cost audit compliance. Companies falling under certain industry categories are mandated to maintain cost records and get them audited by a certified Cost Accountant—but only if they meet specific turnover or revenue thresholds.

So, why does this sectoral breakdown matter?

• ✅ Avoid penalties under the Companies Act, 2013

• ✅ Prepare timely CRA-2 and CRA-3 filings

• ✅ Ensure internal financial discipline

• ✅ Improve pricing and cost efficiency

Not knowing whether your company falls under cost audit purview is no longer an excuse, especially with regulatory scrutiny getting tighter in FY 2024-25. Sector-specific clarity ensures businesses aren’t caught off guard during compliance or audit cycles.

This blog will break down cost audit applicability by sector for 2025, starting with the rule that governs it all: Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, also known as CRA-1.

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Understanding Rule 3 of the Cost Records Rules (CRA-1)

To truly understand sector-wise cost audit applicability in India, you must start with Rule 3 of the Companies (Cost Records and Audit) Rules, 2014—the framework that outlines which companies must maintain cost records and undergo a cost audit.

🔹 The Backbone: Companies (Cost Records and Audit) Rules, 2014

These rules were notified by the Ministry of Corporate Affairs (MCA) under Section 148 of the Companies Act, 2013. They form the legal basis for:

• Which companies need to maintain cost records

• Which companies are required to conduct cost audits

• Industry-wise classifications and turnover thresholds

At the heart of it is Rule 3, which segments companies into two categories:

🔍 A. Regulated Sectors (Mandatory Cost Audit)

These include industries where pricing is controlled or heavily influenced by the government due to public interest. Key sectors include:

• Telecommunication

• Electricity

• Petroleum and Gas

• Drugs and Pharmaceuticals

• Fertilizers

• Railways

If a company in a regulated sector meets the financial thresholds (explained below), it must undergo cost audit and maintain detailed cost records.

🔍 B. Non-Regulated Sectors (Conditional Cost Audit)

For companies in non-regulated sectors, the cost audit requirement is based on turnover and other parameters. These sectors include:

• FMCG

• Automobile

• Cement

• Textiles

• Sugar

• Glass

• Electronics

Although not directly controlled by the government, these sectors are cost-intensive and economically significant, which is why they’re under the CRA-1 radar if thresholds are crossed.

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🧮 Turnover & Thresholds: When Does Cost Audit Apply?

The applicability of cost audit (as per Rule 4 of CRA-1) depends on whether a company falls under a regulated or non-regulated sector, and the financial thresholds:

🔸 Note: The turnover is based on the immediately preceding financial year.

So for FY 2024-25, your company’s FY 2023-24 turnover will determine whether you fall under cost audit compliance.

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📁 Cost Records vs. Cost Audit: Know the Difference

It’s also important to understand that cost records maintenance and cost audit are not the same thing:

• 📂 Maintaining Cost Records: Applicable for a wider set of companies. They must maintain books as per CRA-1 format, even if audit isn’t required.

• ✅ Cost Audit: A step ahead. It applies only if the turnover and sector criteria match the thresholds above.

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🛡️ Exemptions from Cost Audit

Some companies are exempt from cost audit, even if they belong to a listed sector:

• Companies with overall turnover ≤ ₹35 crore in the previous financial year

• Companies operating in R&D or service industries that don’t cross the thresholds

• One Person Companies (OPCs) and Small Companies

However, these exemptions are strictly conditional—crossing even one threshold nullifies the exemption.

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📌 Why This Rule Matters in 2025

CRA-1 compliance isn’t just a box-ticking formality. For many companies in 2025, this could mean:

• 📉 Avoiding costly non-compliance penalties

• 📊 Better internal cost control and pricing strategies

• 📤 Easier funding or IPO preparation with compliant records

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In the next section, we’ll dive into sector-wise breakdowns—starting with pharma, manufacturing, FMCG, and energy—to help you understand whether your business must prepare for cost audit this year.

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:

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.

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Manufacturing Sector: Which Companies Need Cost Audit?

India's manufacturing sector is vast — from steel to automobiles, from cement to textiles — and most of these industries are non-regulated sectors under CRA-1. But that doesn’t mean you can ignore cost audit rules.

In fact, if you're in core manufacturing, there's a high chance cost records and cost audits are applicable.

🏭 Industries Covered Under Cost Audit (Manufacturing)

The following key manufacturing sectors are included under the non-regulated sector category:

• Steel and Iron

• Cement

• Automobile and Auto Components

• Textile & Garments

• FMCG manufacturing (non-food items)

• Paper, Glass, and Ceramics

• Paints and Dyes

• Aluminium and Copper

If your company operates in any of these sectors, it's time to check your turnover.

💰 Cost Audit Thresholds for Manufacturing Companies (2025)

For non-regulated sectors like manufacturing, the cost audit applicability is defined as follows:

So, if your manufacturing business had total revenue above ₹100 crore in FY 2023-24, and at least ₹35 crore from any of the above product lines, you must undergo a cost audit.

Bonus Note for Exporters: If your exports cross ₹25 crore in value for covered manufacturing goods, you may also attract cost audit requirement, even if domestic revenue is limited.

🧾 Cost Records Are Still Mandatory

Even if your company doesn’t meet the audit threshold, you may still be required to maintain cost records if your product is covered under Rule 3. These records must follow the format specified in CRA-1, and include:

• Production quantities

• Per unit cost breakup

• Material, labor, and overhead costs

• Profitability segment-wise

📄 CRA-2 and CRA-3 Filing Compliance

Once cost audit becomes applicable:

• You must appoint a Cost Auditor by filing CRA-2 within 180 days of FY start.

• You must submit CRA-3, the cost audit report, to the MCA within 180 days from the end of the financial year.

⚠️ What If You Miss CRA-2 or CRA-3?

Late or non-filing can lead to:

• Penalty of ₹100/day

• Show-cause notices from MCA

• Ineligibility to file CRA-4 (final submission)

• Directors being held liable under Section 450 of the Companies Act

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✅ Final Thoughts: Don't Ignore CRA Rules in Manufacturing

Many manufacturing businesses assume cost audit is for “big companies only.” But with India tightening compliance standards in 2025, it’s essential to:

• ✅ Conduct a CRA-1 applicability check

• ✅ Track turnover across product lines

• ✅ File CRA-2 and CRA-3 on time

• ✅ Engage a qualified Cost Accountant

FMCG Sector: Is Cost Audit Mandatory in 2025?

The Fast-Moving Consumer Goods (FMCG) sector is a backbone of daily consumer life in India—comprising items like food, beverages, personal care products, soaps, cosmetics, and packaging materials. Despite being a non-regulated sector, cost audit is still applicable to many companies operating within FMCG.

So, if you're running an FMCG brand—big or emerging—here’s what you need to know about cost audit requirements in 2025.

🍜 Covered FMCG Categories under Cost Records Rules

The Companies (Cost Records and Audit) Rules, 2014, updated periodically, bring many FMCG categories under cost compliance:

• Packaged food products (snacks, ready meals, beverages, bakery items)

• Soap and detergents

• Cosmetics and toiletries

• Toothpaste, shampoo, and skincare products

• Packaging and labeling units (cartons, wrappers, pouches)

Even companies in contract manufacturing or third-party packaging are covered if their operations meet certain financial criteria.

📊 Why FMCG Falls Under “Non-Regulated but Covered” Sector

FMCG is classified under non-regulated sectors in Rule 3 of CRA-1. That means:

✅ Cost records are mandatory if product types are covered
✅ Cost audit is required if turnover thresholds are exceeded

Turnover thresholds for non-regulated sectors (as of FY 2024-25):

So, if your FMCG company crosses ₹100 crore in annual revenue and earns ₹35 crore+ from covered products, you must file CRA-2 and conduct a cost audit.

🌱 ESG Focus: Environmental Costing in FMCG

With the rise of ESG (Environmental, Social, Governance) mandates, many FMCG companies are voluntarily including:

• Environmental cost records (waste, water, packaging)

• Sustainability metrics in costing reports

• Carbon footprint per unit of product

Cost audits can help FMCG brands demonstrate sustainability to investors, regulators, and customers alike. In fact, ESG-focused costing may soon be mandated for export-oriented FMCG businesses.

🧾 Don’t Miss These CRA Compliance Requirements

If cost audit is applicable to your FMCG unit, here’s your FY 2025 compliance roadmap:

• File CRA-2 (cost auditor appointment) within 180 days of FY start

• Maintain cost records as per CRA-1 format

• File CRA-3 (cost audit report) within 180 days of FY end

• Ensure consistency with financial records for reconciliation

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Energy Sector: Cost Audit in Power, Oil & Gas

The energy sector is categorized as a regulated sector under the Cost Audit Rules. This includes power generation and distribution, oil refining, coal mining, and gas production.

Why is cost audit mandatory here? Because energy pricing affects national infrastructure, public utility services, and inflation control.

⚡ Power Sector: Mandatory Cost Audit Applies

All companies engaged in:

• Electricity generation (thermal, hydro, solar, wind)

• Electricity transmission and distribution

• Power trading and bulk supply

…are required to maintain cost records and, if they meet turnover thresholds, file cost audit reports under CRA-3.

Thresholds for Cost Audit in Power Companies

So, if your solar plant earns ₹30 crore out of a total ₹60 crore turnover, you must comply with cost audit norms.

Power distribution companies (DISCOMs), independent power producers (IPPs), and renewable energy players are not exempt from cost audit if criteria are met.

🛢️ Oil & Gas Sector: CRA Applicability in 2025

Companies involved in:

• Oil refining and petrochemicals

• Natural gas extraction

• Coal mining and processing

• LPG and CNG bottling

• Crude oil import and refining

…are also included in the regulated category for cost records and audit.

Many PSUs and private oil majors in India like IOCL, BPCL, ONGC, and Reliance must file CRA reports annually for their refineries and gas infrastructure.

Turnover Thresholds for Oil & Gas Cost Audit

Same as other regulated sectors:

Companies like city gas distributors, pipeline operators, and energy traders must also analyze if their revenue mix meets audit criteria.

📋 Cost Records & CRA Templates for Energy Sector

Energy companies must prepare cost records in CRA-1 format, which includes:

• Fuel usage & energy efficiency metrics

• Depreciation on plant and equipment

• Production capacity vs. actual utilization

• Operating margins by energy product

Power and energy sectors often have huge capex and regulatory oversight, making cost audits crucial for tariff planning and government reporting.

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🔍 Pro Tip for Compliance:

Energy companies often face regulatory scrutiny from CERC, DERC, and PNGRB. Cost audit reports under CRA-3 add credibility and aid in tariff submissions, subsidy claims, and pricing justification.

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✅ Conclusion: Sector Determines CRA Compliance

In both FMCG and Energy sectors, cost audit plays a crucial role in cost transparency, pricing control, and regulatory filing.

📌 FMCG = Non-regulated but widely covered
📌 Energy = Regulated and strictly monitored

Whether you're managing a cosmetics brand or running a power plant, it’s essential to:

• Review Rule 3 applicability for your sector

• Maintain cost records in the prescribed format

• File CRA-2 and CRA-3 on time

• Use professional help for audit and reconciliation

Exemptions & Thresholds You Should Know

Not every company is required to undergo a cost audit. The Companies (Cost Records and Audit) Rules, 2014 outline specific thresholds and exemptions based on turnover, sector classification, and type of company.

Understanding these limits is essential for avoiding unnecessary compliance—or worse, missing a mandatory audit.

📉 Cost Audit Exemption for Small Companies

If your company’s total annual turnover is less than ₹35 crore, you’re automatically exempt from cost audit, regardless of the sector. This rule applies even if you deal in products or services listed under cost audit categories.

So, a packaging unit earning ₹28 crore annually won't need to file CRA-2 or CRA-3.

But remember: cost records maintenance may still be mandatory if you're operating in a covered product category. Audit exemption ≠ cost record exemption.

💼 Net Worth, Export & Other Conditions

In some cases, cost audit applicability also depends on:

• Net worth of the company

• Foreign exchange earnings from exports

• Business model (trading vs manufacturing)

Example: A pharma exporter with ₹100 crore in turnover but only ₹20 crore from covered products may be exempt from cost audit, but not from cost record maintenance.

🏛️ What About Government Companies?

Here’s the important bit: All Central and State Government companies engaged in regulated sectors must comply with cost audit provisions, regardless of thresholds.

So whether it's a PSU in power, oil, or fertilizers—cost audit is mandatory.

🟢 Quick Summary:

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Penalties for Non-Compliance with Cost Audit Rules

Ignoring cost audit provisions can lead to serious financial and legal consequences under the Companies Act, 2013. Here’s what companies risk when they don’t file CRA forms or appoint cost auditors on time.

📌 Section 148 & 233B of Companies Act

These sections empower the government to direct companies to maintain cost records and have them audited by a qualified cost accountant. Non-compliance is punishable under Section 450, which deals with general penalties.

📝 CRA-2: Penalty for Not Appointing Cost Auditor

CRA-2 is the form used to inform MCA about your cost auditor’s appointment. It must be filed within 180 days from the start of the financial year.

If you fail to file CRA-2:

• The company and its officers may be fined up to ₹50,000

• Continuing failure leads to an additional ₹1,000 per day

⏰ CRA-3 & CRA-4: Penalty for Delay in Report Filing

CRA-3 (cost audit report) and CRA-4 (XBRL submission of report) must be filed within 180 days of the financial year end.

Penalties include:

• ₹100 per day of delay in filing

• Additional late fees if ROC imposes e-form penalties

• Risk of MCA scrutiny or notice

Note: Penalties are levied on both the company and its directors, so timely compliance is critical.

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SSCOIndia’s Advice for Your Sector

At SSCOIndia, we understand that cost audit compliance isn’t just about filing a form—it’s about building accurate, audit-ready records specific to your industry.

Our sector-specialist cost accountants provide:

🛠️ Audit Readiness Consultation

Not sure if CRA applies to your business? We offer:

• Sector-specific applicability checks

• Turnover & threshold analysis

• CRA-2 due date planning

📊 Sector-Based Cost Compliance Plans

Whether you’re in pharma, energy, manufacturing, or FMCG, we help you:

• Draft cost sheets as per CRA-1

• Ensure records match financials

• Implement systems for real-time cost tracking

📁 Cost Record Reconciliation Services

Mismatch between cost and financial records is the #1 reason for audit objections.

We’ll help you:

• Reconcile cost vs. financial data

• Prepare detailed notes for auditors

• Avoid red flags during CRA-3 review

Want a sector-wise cost audit roadmap tailored for your business? Reach out to SSCOIndia now.

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Final Checklist + CTA

Before the fiscal year slips away, ask yourself:

✅ Have you crossed ₹35 crore in turnover?
✅ Do your products fall under cost audit sectors?
✅ Are you a government or regulated entity?
✅ Have you appointed your cost auditor by filing CRA-2?
✅ Is your team preparing cost records in CRA-1 format?

If you’re unsure about even one of the above, it’s time to consult the experts.

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📢 Final Call-to-Action

💼 Don’t risk your company’s compliance status.
📊 Penalties, scrutiny, and notices are real—and preventable.

✅ Book a Cost Audit Consultation with SSCOIndia today
✔️ Ensure your FY 2024-25 cost audit compliance is on track
📅 Avoid last-minute stress and penalties

👉 Contact Us to Schedule Your Consultation