Which Companies Must Undergo Cost Audit in India? A Comprehensive Guide

In the evolving world of corporate compliance, cost audit is a crucial yet often misunderstood requirement. Understanding when your company is eligible—or mandated—to undergo a cost audit can help you stay compliant and avoid penalties. Here's a refined breakdown to guide you.

A comprehensive look at a cost sheet, highlighting the essential components in the calculation of total production costs—an integral step in corporate compliance and cost auditing.

1. Legal Foundation

Under Section 148 of the Companies Act, 2013, the Central Government may require businesses to maintain cost records and undergo cost audit. These requirements are reinforced through the Companies (Cost Records and Audit) Rules, 2014.

2. Who Must Maintain Cost Records?

Companies meeting both of the following must maintain cost records:

• Engaged in producing goods or providing services listed in either Table A (regulated sectors) or Table B (non-regulated sectors) of Rule 3, and

• Have aggregate turnover exceeding ₹35 crore in the preceding financial year.

The Companies (Cost Records and Audit) Rules, 2014 classify industries into two categories for the purpose of cost record maintenance and cost audit:

📌 Table A – Regulated Sectors

These are industries where pricing and operations are directly or indirectly regulated by the government due to their critical importance to the economy and public interest.Examples include:

• Telecommunication services

• Electricity generation, transmission, distribution

• Petroleum products (exploration, production, refining)

• Pharmaceuticals & drugs (formulations and bulk drugs)

• Fertilizers

• Sugar

• Industrial alcohol

• Railways (rolling stock, tracks, etc.)

👉 If your company operates in any of these regulated industries and meets the turnover thresholds (₹50 crore overall and ₹25 crore for the regulated product/service), cost audit becomes mandatory.

📌 Table B – Non-Regulated Sectors

These cover other significant manufacturing industries where cost transparency helps improve efficiency, competitiveness, and policy-making.Examples include:

• Cement

• Steel and other metals (aluminium, copper, zinc, etc.)

• Chemicals (insecticides, pesticides, paints, varnishes, etc.)

• Tyres and rubber products

• Paper and pulp

• Textiles and garments

• Glass

• Automobiles & auto components

• Mining & minerals

• Engineering goods and machinery

• Milk and dairy products

• Batteries, electrical equipment, and consumer durables

👉 For these sectors, the higher thresholds apply: overall turnover of ₹100 crore and product/service turnover of ₹35 crore.

✅ Why This Classification Matters

• Table A industries = critical and regulated → lower turnover threshold, stricter monitoring.

• Table B industries = broader manufacturing base → higher threshold, but still under audit if size is significant.

3. When is Cost Audit Mandatory?

If cost records are applicable, cost audit becomes mandatory based on turnover thresholds in Rule 4:

• Regulated industries (Table A):

  • Total turnover ≥ ₹50 crore, AND

  • Product/service turnover ≥ ₹25 crore.

• Non-regulated industries (Table B):

  • Total turnover ≥ ₹100 crore, AND

  • Product/service turnover ≥ ₹35 crore.

4. Who’s Exempt from Cost Audit?

Even when thresholds are met, audit obligations may be waived if:

• Export revenue exceeds 75% of total revenue (in foreign exchange),

• The company operates entirely from a Special Economic Zone (SEZ), or

• The company generates electricity solely for captive consumption.

5. Audit Process & Compliance Timeline

Here’s what the cost audit journey typically looks like:

1. Appoint a Cost Auditor

   • Within 180 days of the financial year’s start

   • Must be a qualified Cost Accountant; consent and eligibility certificate required.

2. Submission to MCA

   • Notify the Central Government using Form CRA-2 within 30 days of appointment.

3. Conduct Audit & Report

   • Auditor examines cost records and handles discrepancies using Form CRA-3 (Cost Audit Report).

4. Board Scrutiny & Filing

   • Submit the report to your Board within 180 days post year-end

   • File the report with the MCA in Form CRA-4.

5. Penalties for Noncompliance

   • Company: ₹25,000 to ₹5 lakh fine; possible further daily fines.

   • Officers or auditors: penalties or imprisonment as per Section 148 of the Act.

6. At a Glance: Applicability Table

Sector Type	Total Turnover (₹)	Product Turnover (₹)
Regulated (Table A)	≥ 50 crore	≥ 25 crore
Non-Regulated (Table B)	≥ 100 crore	≥ 35 crore

(Remember: Export/SEZ/captive-power-based exemptions may still apply.)

7. How DP Jadhav & Co. Helps You Navigate Cost Audit

At DP Jadhav & Co., with 16+ years of experience, we offer expert guidance at every stage:

• Assessment of Applicability: Determine if your business falls under Table A or B and meets the relevant thresholds.

• Documentation & Record Preparation: Help you maintain Form CRA-1 cost records accurately.

• Appointment & Compliance Filing: Assist with CRA-2 filing and appointing an eligible auditor seamlessly.

• Audit Coordination & Filing: Coordinate audit processes, report reviews, and CRA-3/CRA-4 filings.

• In-Depth Insights: Analyze CARO-linked observations, provide process improvements, and cost optimization through audit findings.

Final Thoughts

Navigating cost audit requirements can be complex. It’s not just about compliance—it’s an opportunity to gain cost insights, improve operational efficiency, and potentially unlock subsidies or export advantages.

At DP Jadhav & Co., we turn reporting requirements into strategic opportunities—for growth, transparency, and performance. Ready to take the next step? Reach out to us today to simplify your cost audit journey.