Introduction: Understanding Cost Record Maintenance Under Rule 3

As India moves further into a compliance-driven regulatory era, understanding the requirements under the Companies (Cost Records and Audit) Rules, 2014 has become essential for all growing businesses. Whether you operate in manufacturing, services, or export-driven sectors, the requirement to maintain cost records could apply to your company—even if you aren’t currently required to undergo a cost audit.

So what does maintaining cost records really mean?

Under the law, companies that fall under certain sectors and turnover thresholds are required to systematically maintain detailed records of their cost structures—including direct material, labor, utilities, production overheads, and process-specific costs. These records must be kept in the prescribed CRA-1 format, which outlines the cost accounting framework recognized by the Ministry of Corporate Affairs (MCA).

Maintaining cost records is not the same as cost audit.

Cost audit is the external verification of cost records by a certified Cost Accountant.
Cost record maintenance is the internal responsibility of the company to document and classify costs accurately.

Even if you are exempt from cost audit under Rule 4, you may still be required to maintain cost records under Rule 3.

This blog will help you:

• Understand which industries must maintain cost records in India under Rule 3

• Differentiate between regulated and non-regulated sectors

• Determine your company’s cost record applicability based on turnover

• Comply with CRA-1 standards without missing critical deadlines

We’ll also provide real-world examples and outline how your company can avoid penalties by staying compliant through accurate cost recordkeeping.

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⚖️ 2. Legal Basis: Rule 3 of the Companies (Cost Records and Audit) Rules, 2014

To know if your company is required to maintain cost records, you must look to Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, issued under Section 148 of the Companies Act, 2013.

Let’s break down what Rule 3 really means for businesses in 2025.

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📘 What is Rule 3?

Rule 3 clearly outlines the categories of companies and industries that are required to maintain cost records. It classifies businesses into:

• Regulated Sectors (with price-sensitive or government-monitored operations)

• Non-Regulated Sectors (commercial, industrial sectors with significant economic impact)

If a company:

• Belongs to a listed sector (regulated or non-regulated), and

• Has a total turnover of ₹35 crore or more in the immediately preceding financial year,

Then it must maintain cost records in CRA-1 format from the beginning of the financial year.

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💰 Turnover Threshold: ₹35 Crore or More

Turnover is the determining factor for cost record applicability.

If your total turnover (from all products and services combined) during the last financial year was ₹35 crore or more, then Rule 3 applies—provided you’re in a covered industry.

This includes:

• Domestic and export sales

• Revenue from service contracts

• Job work or processing charges

• Subsidiary and group company revenue, if consolidated

✅ Example:

• A textile manufacturer with ₹40 crore turnover (even if exempt from audit) must maintain cost records.

• A steel company with ₹30 crore turnover = exempt (for now).

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🏭 Applicability to Regulated and Non-Regulated Sectors

Rule 3 applies to two broad industry categories:

🔒 Regulated Sectors:

These industries are subject to government regulation, price control, or strategic monitoring. Examples include:

• Pharmaceuticals

• Electricity generation and distribution

• Petroleum and Natural Gas

• Telecommunication services

• Fertilizers

• Sugar

• Medical devices

• Milk and dairy products

Companies in these sectors face tighter compliance, and thus must maintain cost records more rigorously.

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🔓 Non-Regulated Sectors:

These are standard manufacturing and industrial sectors with high turnover potential and economic relevance. Examples include:

• Cement

• Steel

• Edible oils

• Insecticides

• Electrical equipment

• Glass

• Paper and paper products

• Textile and garments

• Paints and varnishes

Though not price-regulated, companies in these sectors are expected to provide transparent cost data for taxation, subsidies, and policy planning.

💡 Note: The full list of covered products is provided in the MCA notification annexure. Companies must map their HS Code or product description to this list to verify inclusion.

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📂 CRA-1 – Format for Maintaining Cost Records

All companies covered under Rule 3 must maintain cost records in the CRA-1 format, which includes:

• Product-wise material consumption

• Employee cost allocation

• Energy usage and utilities

• Admin and overhead expenses

• R&D expenditure

• Packing, freight, and distribution cost

• Product profit margins

These records must be:

• Updated monthly or quarterly

• Stored for audit-readiness, even if cost audit isn’t applicable

• Verified by internal teams and management periodically

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📌 Summary: Is Rule 3 Applicable to You?

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By maintaining cost records, your company not only complies with statutory requirements but also:

• Gains better visibility into operational costs

• Strengthens pricing decisions

• Prepares for future cost audits, GST audits, or transfer pricing scrutiny

Regulated Sectors That Must Maintain Cost Records

Under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, certain industries classified as “regulated sectors” must mandatorily maintain cost records in CRA-1 format if their overall turnover is ₹35 crore or more in the previous financial year.

These sectors are regulated either due to government pricing, strategic national interest, or critical public utility services. The Ministry of Corporate Affairs (MCA) expects higher transparency and cost discipline from companies in these sectors.

Here’s a breakdown of regulated sectors in India for 2025 that are required to maintain cost records:

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💊 1. Pharmaceuticals

Includes the manufacturing of:

• Formulations

• Bulk drugs

• Vaccines

• Nutraceuticals

HS Codes: 3001 to 3006

✅ Example:
A pharmaceutical company in Delhi with ₹40 crore turnover (from tablets and capsules) must maintain cost records as per CRA-1—even if it is exempt from cost audit under Rule 4.

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🌾 2. Fertilizers

Covers production of:

• Urea

• Phosphate-based fertilizers

• Micronutrients

HS Codes: 3102, 3103, 3104

✅ Example:
A fertilizer plant in Gujarat manufacturing ₹38 crore worth of DAP is required to maintain cost records for each product variant.

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🛢️ 3. Petroleum and Natural Gas

Includes:

• Refineries

• Gas processing

• LPG and diesel production

HS Codes: 2710 to 2716

✅ Example:
A mid-sized oil refinery in Maharashtra with ₹80 crore turnover must segregate material, energy, and maintenance costs in CRA-1 format.

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📞 4. Telecommunication Services

Covers:

• Wireless telecom providers

• Broadband operators

• Fiber optic infrastructure

HS Codes/Service Codes: Notified under telecom regulatory services

✅ Example:
A broadband service provider operating pan-India with ₹120 crore in revenue must maintain cost records for service-wise profitability and bandwidth cost.

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⚡ 5. Electricity Generation, Transmission & Distribution

Includes:

• Power plants (thermal, solar, hydro, wind)

• Transmission companies

• State discoms

HS Codes: Notified for energy sector

✅ Example:
A solar power generator in Rajasthan generating ₹50 crore from energy sales must maintain records for fixed vs variable cost, depreciation, and load factor efficiency.

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🥛 6. Milk and Milk Products

Includes:

• Pasteurized milk

• Butter, cheese, paneer

• Ice cream and curd

HS Codes: 0401 to 0406

✅ Example:
A dairy plant in Punjab producing ₹37 crore worth of milk and ghee must maintain cost records under CRA-1 for every product line.

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🍬 7. Sugar

Covers:

• Crystalline sugar

• Jaggery, molasses

• Ethanol by-products

HS Code: 1701

✅ Example:
A sugar mill with ₹45 crore turnover from sugar and ₹8 crore from ethanol must maintain product-specific cost sheets.

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🏥 8. Medical Devices

Includes:

• Stents, syringes, surgical gloves

• Diagnostic kits, ventilators

HS Codes: 9018, 9019, 9022

✅ Example:
A Noida-based medical device manufacturer producing ₹42 crore in disposable syringes is required to maintain monthly cost records for raw material, packaging, and testing.

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📌 All companies in these regulated sectors with turnover ≥ ₹35 crore must:

• Maintain CRA-1 compliant cost records

• Prepare internal reconciliation with financial data

• Be audit-ready, even if cost audit is not applicable

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Non-Regulated Sectors That Must Maintain Cost Records

In addition to regulated sectors, non-regulated industries listed under Rule 3 must also maintain cost records if they meet the ₹35 crore turnover threshold. These are traditional industrial and manufacturing segments critical to India’s economy.

Here’s a detailed look at non-regulated sectors in 2025 that must maintain cost records:

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🏗️ 1. Cement

HS Code: 2523
Includes all types of cement, clinkers, and white cement.

✅ Example:
A cement manufacturer with ₹75 crore turnover must maintain cost records showing kiln operations, energy cost per ton, and freight.

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🔩 2. Steel

HS Code: 7206 to 7229
Includes TMT bars, sheets, coils, and alloy steel.

✅ Example:
An integrated steel plant in Chhattisgarh producing ₹120 crore worth of TMT bars must record ore processing, melting, rolling, and inventory losses.

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👕 3. Textile and Garments

HS Codes: 5201 to 6310
Covers spinning, weaving, knitting, and apparel manufacturing.

✅ Example:
A garment exporter in Tirupur with ₹45 crore turnover must maintain per-product cost records including stitching labor, dyeing cost, and wastage.

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📄 4. Paper

HS Code: 4801 to 4823
Covers printing paper, tissue, kraft, and packaging board.

✅ Example:
A paper mill in Himachal Pradesh producing ₹40 crore worth of packaging board must segregate cost of pulp, chemicals, water, and power.

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🎨 5. Paints and Varnishes

HS Code: 3208, 3209
Includes emulsion, enamel, and industrial coatings.

✅ Example:
A paint company in Delhi NCR with ₹55 crore turnover must track solvent use, packaging, R&D, and distribution cost.

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🛢️ 6. Edible Oils

HS Code: 1507 to 1518
Covers mustard, soybean, palm, and refined oils.

✅ Example:
An edible oil refiner in Gujarat producing ₹100 crore of products must report degumming, refining, and packing cost per liter.

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🚗 7. Tyres and Tubes

HS Code: 4011, 4013
Covers radial, bias tyres and tubes for all vehicles.

✅ Example:
A tyre plant in Haryana with ₹95 crore turnover must maintain compound-wise cost records and defect analysis.

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🐜 8. Insecticides and Pesticides

HS Code: 3808
Covers agrochemical manufacturing.

✅ Example:
A pesticide manufacturer in Andhra Pradesh producing ₹36 crore worth of insecticides is required to record batch-wise cost data.

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🧪 9. Glass

HS Code: 7003 to 7010
Includes container glass, float glass, laminated glass.

✅ Example:
A Noida-based float glass company with ₹50 crore turnover must maintain cost data per furnace, cullet ratio, and wastage.

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🔌 10. Electrical & Electronic Equipment

HS Code: 8501 to 8544
Covers transformers, cables, lighting, batteries, and electronics.

✅ Example:
A lighting unit in Gurugram with ₹60 crore turnover must record bill of materials, PCB cost, and testing expenses.

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🧴 11. Plastics and Polymers

HS Code: 3901 to 3926
Includes molded goods, packaging, sheets, and films.

✅ Example:
A plastic packaging company with ₹42 crore revenue must track resin input cost, extrusion loss, and scrap recovery.

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⚙️ 12. Machinery and Mechanical Appliances

HS Code: 8401 to 8479
Covers industrial machines, compressors, gearboxes, etc.

✅ Example:
A machine tool builder with ₹85 crore turnover must maintain part-wise manufacturing cost and assembly tracking.

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📌 All non-regulated companies above ₹35 crore turnover must maintain:

• CRA-1 compliant records

• Monthly updates per product/process

• Cost-to-financial reconciliations for audit preparedness

What Must Be Included in CRA-1 Cost Records

Once a company is covered under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, it is legally obligated to maintain cost records in CRA-1 format. These records provide a transparent, detailed, and product-wise breakdown of all cost components incurred in the course of manufacturing, processing, or service delivery.

CRA-1 serves as the foundation for cost audit, pricing decisions, regulatory filings, and internal financial planning. Therefore, maintaining complete and accurate CRA-1 cost records is not just a statutory requirement—but a strategic tool for cost control and compliance.

Below is a breakdown of what must be included in CRA-1 cost records for 2025:

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🧱 1. Material Cost

Material costs are one of the largest cost components for any manufacturing or production-based business.

What to include:

• Opening and closing stock of raw materials

• Quantity and value of materials consumed

• Material wastage, scrap, and by-products

• Cost of materials purchased (including freight, taxes, handling)

💡 Product-wise consumption and costing must be clearly stated. Separate cost records must be kept for direct vs indirect materials.

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👷 2. Employee Cost

Employee costs must reflect both direct labor (linked to production) and indirect labor (admin, support, maintenance).

Inclusions:

• Salaries and wages

• Bonuses, incentives, and allowances

• Statutory contributions: PF, ESI, gratuity, etc.

• Leave encashment and welfare expenses

🔍 Employee cost must be allocated across cost centers and processes for each product or department.

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⚡ 3. Utilities

Utility expenses are critical in energy-intensive industries like cement, steel, glass, and chemicals.

Inclusions:

• Electricity (metered and generated)

• Fuel: gas, diesel, coal

• Water and steam consumption

• Generator, compressor, and cooling costs

Cost allocation must be unit-based (e.g., per ton of cement, per liter of oil refined) and documented monthly.

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🏭 4. Factory & Administrative Overheads

These include indirect costs incurred during production and company operations.

Factory Overheads:

• Repairs and maintenance

• Spares and consumables

• Quality control and inspection

• Tooling, cleaning, and waste disposal

Administrative Overheads:

• Rent, communication, office expenses

• Insurance, professional fees, and audit costs

• Salary of admin staff and HR

💡 Overheads must be categorized, pooled, and distributed across products logically and consistently.

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🔬 5. R&D, Depreciation, Packing & Freight

Special components in CRA-1 focus on costs beyond production:

R&D Expenses:

• Cost of experimental products

• Lab testing and certifications

• Failed prototypes and reworks

Depreciation:

• Plant & machinery

• Tools, dies, and equipment

• Office assets and intangible items (as per Schedule II of Companies Act)

Packing, Freight & Distribution:

• Primary and secondary packaging

• Freight outward

• Logistics and warehousing

• Marketing, dealer commissions (if allocable)

📦 These costs must be mapped to individual SKUs or product groups to maintain CRA-1 compliance.

 Product-Wise Segregation of Cost Records

The heart of CRA-1 is product-wise costing.

You must maintain:

• Separate cost sheets for each product or service category

• Plant-wise and process-wise breakup (if applicable)

• Batch, unit, or ton-level cost records

• Allocation of shared resources across product lines

✅ Example:
If a company produces 3 types of paints (interior, exterior, enamel), the material, labor, utility, and overhead costs must be segregated and reported separately in CRA-1.

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📅 7. Format and Frequency of Recordkeeping

CRA-1 Format Requirements:

• Month-wise and year-to-date records

• Segregated cost centers: production, admin, sales, R&D

• Logical allocation base (labor hours, machine time, units produced)

Frequency:

• Monthly maintenance is ideal (especially in high-volume sectors)

• Quarterly review recommended for internal control

• Annual summary used for CRA-3 and CRA-4 filing

🧠 Tip: Automate CRA-1 recordkeeping using Excel templates, ERP systems, or SSCOIndia’s proprietary cost record modules.

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⚠️ 6. Consequences of Not Maintaining Cost Records

Failing to maintain proper cost records is a serious offense under the Companies Act, 2013. Non-compliance can result in:

• Regulatory scrutiny

• Loss of cost audit exemptions

• Reputational damage

• Financial penalties

Here are the major risks associated with non-compliance:

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👁️ 1. MCA Scrutiny & Show-Cause Notices

The Ministry of Corporate Affairs (MCA) uses AI and analytics to flag companies for:

• Missing CRA-1 records

• CRA-2 and CRA-4 mismatch

• Turnover above ₹35 crore with no cost record filing

MCA can issue:

• Notices for clarification

• Demand for record inspection

• Summons for director explanations

📌 Proactive CRA-1 maintenance avoids being blacklisted under MCA’s compliance grading.

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🚫 2. Disqualification from Cost Audit Exemption

Even if a company qualifies for exemption under Rule 4, failure to maintain CRA-1 can:

• Void the exemption

• Trigger compulsory cost audit

• Lead to rejection of CRA-3 or CRA-4 by MCA

📢 Companies claiming exemption must still show proof of CRA-1 compliance.

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💸 3. Penalties Under Section 148 of the Companies Act

As per Section 148(8), non-compliance may result in:

💡 Multiple years of non-compliance can trigger cumulative penalties.

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🧾 4. Inaccurate Reporting for GST & Income Tax Reconciliation

Without proper cost records:

• Input cost matching under GST becomes difficult

• Cost-led profitability misaligns with ITR filings

• Transfer pricing assessments become high-risk

🚨 GST officers may question ITC claims if cost records are not available during audit.

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📌 Final Word

Maintaining cost records in CRA-1 format is not just about statutory compliance—it is a best practice that improves cost visibility, audit preparedness, and cross-regulatory reporting.

📥 Need help structuring your CRA-1 reports?
✅ Book a free CRA-1 implementation consultation with SSCOIndia.com today.

How SSCOIndia Helps Regulated & Non-Regulated Industries Stay Compliant

At SSCOIndia, we’ve worked with hundreds of businesses across regulated and non-regulated sectors to help them stay fully compliant with Rule 3 of the Companies (Cost Records and Audit) Rules, 2014. Whether your company is preparing for a cost audit or simply needs to maintain CRA-1 records, our experts ensure you’re compliant, audit-ready, and penalty-free.

Here’s how we support you:

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📂 CRA-1 Cost Record Templates & Setup

We provide:

• Ready-to-use CRA-1 compliant Excel templates

• Sector-specific formats (pharma, steel, textile, etc.)

• Custom layouts based on your cost centers and plant structure

• Training to your finance team for monthly updates

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🏭 Industry-Specific CRA-1 Support

Our compliance professionals understand the cost dynamics across:

• Pharmaceuticals and medical devices

• Iron, steel, cement, and glass

• FMCG, food processing, and dairy

• Electricals, electronics, plastics, and chemicals

💡 This allows us to map your cost elements accurately to CRA-1 categories—no guesswork, no risk.

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🔍 Internal Review and Cost Reconciliation

Before audit season, we help you:

• Match CRA-1 cost data with financial statements

• Reconcile with GST returns and income tax records

• Identify errors or gaps in cost allocation

• Provide audit-ready cost sheets and notes

✅ Our internal checklist ensures that CRA-1 records meet MCA scrutiny standards.

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📤 CRA-1 to CRA-4 Filing & Advisory

Need help with the full CRA filing cycle? We handle:

• CRA-2 (auditor appointment)

• CRA-3 (cost audit report preparation)

• CRA-4 (XBRL filing and MCA portal submission)

🧾 Whether you’re in Delhi NCR, Mumbai, Pune, or Chennai—we offer PAN-India support for CRA compliance.

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📞 Want to stay audit-ready and penalty-free?
Book a FREE CRA-1 setup and compliance review today at SSCOIndia.com

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Conclusion & Call to Action

Cost record maintenance under Rule 3 is no longer optional—it is a statutory requirement for industries with ₹35 crore+ turnover in both regulated and non-regulated sectors.

If you operate in sectors like pharmaceuticals, cement, textiles, steel, edible oils, electricals, or machinery—you must maintain CRA-1 compliant cost records, even if cost audit does not apply to you yet.

Failing to comply with cost record rules can result in:

• MCA scrutiny and penalties

• Disqualification from audit exemption

• Inconsistent tax filings and reputational damage

At SSCOIndia, we make CRA-1 compliance simple, streamlined, and stress-free—whether you're managing multiple products or operating across plants.

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📥 Call to Action:

✅ Get a FREE Industry-Specific CRA-1 Compliance Review
Don’t risk penalties—book your audit-readiness consultation now.

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