Cost Records & Cost Audit Applicability – FY 2024‑25 & FY 2025‑26

By CA Surekha S ahuja

 References:

• Section 148(1), Companies Act, 2013

• Companies (Cost Records & Audit) Rules, 2014 (as amended, GSR 425(E))

• MSMED Act, 2006, Gazette Notification S.O. 1364(E) dated 21.03.2025

• MCA & ICMAI guidance

Legal Basis

Section 148(1), Companies Act, 2013:

“Every company which is required to maintain cost records under this section shall prepare such records in respect of the items of goods or services as may be prescribed in the manner specified in the Companies (Cost Records & Audit) Rules, 2014.”

Rule 3 (Cost Records – Applicability):

• Rule 3(1)(a): Applies to 37 regulated sectors (Table A)

• Rule 3(1)(b): Applies to 7 non-regulated sectors (Table B) if overall turnover ≥ ₹35 cr and company is not Micro or Small

Rule 4 (Cost Audit – Applicability):

• Rule 4(1) – Regulated sectors: Overall turnover ≥ ₹50 cr & product turnover ≥ ₹25 cr, not Micro/Small

• Rule 4(2) – Non-regulated sectors: Overall turnover ≥ ₹100 cr & product turnover ≥ ₹35 cr, not Micro/Small

Rule 4(3) – Exemptions:
Cost audit not required if:

1. Foreign exchange revenue >75% of total turnover

2. Operates exclusively from SEZ

3. Captive consumption of power

4. Micro/Small Enterprise under MSME classification

MSME Classification (Updated for FY 2025‑26)

MSME Type	Plant & Machinery/Equipment	Annual Turnover
Micro	≤ ₹2.5 cr	≤ ₹10 cr
Small	≤ ₹25 cr	≤ ₹100 cr
Medium	≤ ₹125 cr	≤ ₹500 cr

Old limits (FY 2024‑25):

• Micro ≤ ₹1 cr / ₹5 cr

• Small ≤ ₹10 cr / ₹50 cr

• Medium ≤ ₹50 cr / ₹250 cr

Key Interpretation:

• Micro & Small: fully exempt from cost records and cost audit.

• Medium: compliance required if thresholds met.

Sectoral Applicability – Industry-Specific

A. Regulated Sectors (Rule 3, Table A)

Industry	Key Notes
Petroleum Products & Refineries	Licenses regulated by Govt/IOCL
Electricity (Generation/Transmission/Distribution)	Includes public & captive generation
Drugs & Pharmaceuticals	CDSCO/FDA regulated
Fertilisers	Urea/NPK/DAP manufacturing
Sugar & Industrial Alcohol	Licensing regulated
Telecommunication	Licensed telecom operators
Railways	Freight & passenger operations

B. Non‑Regulated Sectors (Rule 3, Table B)

Industry	Key Notes
Cement, Steel, Glass, Ceramics	Manufacturing units
Textiles & Apparel	Excludes handloom Micro/Small units
Paper & Paper Products	Non-licensed domestic production
FMCG / Edible Oils / Food Processing	Non-regulated
Electrical & Electronic Machinery	Manufacturing
Rubber Products / Tyres & Tubes	Non-regulated
Paints & Varnishes	Non-regulated production

Interpretation: Even non-regulated companies must maintain cost records if turnover ≥ ₹35 cr and not Micro/Small.

Turnover Thresholds – Cost Records vs Audit

A. Cost Records (Rule 3)

FY	MSME Type	Turnover Threshold	Records Required?
2024‑25	Micro/Small	≤ ₹50 cr	❌ Exempt
2024‑25	Medium	> ₹50 cr & ≥ ₹35 cr	✅ Yes
2025‑26	Micro/Small	≤ ₹100 cr	❌ Exempt
2025‑26	Medium	> ₹100 cr & ≥ ₹35 cr	✅ Yes

Note: ₹35 cr threshold applies after MSME classification.

B. Cost Audit (Rule 4)

Sector	Overall Turnover	Product Turnover	Notes
Regulated	≥ ₹50 cr	≥ ₹25 cr	Mandatory if not Micro/Small
Non-Regulated	≥ ₹100 cr	≥ ₹35 cr	Mandatory if not Micro/Small

Exemptions – Rule 4(3)

Exemption	Condition
Exports	>75% foreign exchange revenue
SEZ Operations	Company operates exclusively from SEZ
Captive Power	Power generated is fully for internal consumption
MSME Exemption	Micro/Small as per revised MSMED Act

Interpretation: Exemptions override thresholds. Audit is not required even if turnover is high.

Year-Wise Applicability Snapshot

FY	Turnover	MSME Type	Records?	Audit?	Comments
2024‑25	≤ ₹50 cr	Micro/Small	❌ No	❌ No	Fully exempt
2024‑25	50–100 cr	Medium	✅ Yes (≥ ₹35 cr)	⚠️ Conditional	Check Rule 4 thresholds
2024‑25	≥100 cr	Medium	✅ Yes	✅ Yes	Rule 4 thresholds apply
2025‑26	≤ ₹100 cr	Micro/Small	❌ No	❌ No	Fully exempt
2025‑26	>100 cr	Medium	✅ Yes	⚠️ Conditional	Check Rule 4 thresholds & exemptions

Decision Tree – Step-by-Step Compliance

Step 1: MSME Status (Udyam Registration)

• Micro/Small → No records, no audit

• Medium → Go to Step 2

Step 2: Sector Classification

• Regulated → Rule 3(A)/4(1)

• Non-Regulated → Rule 3(B)/4(2)

Step 3: Turnover Thresholds

• Records: ≥ ₹35 cr

• Audit: Rule 4 thresholds (Regulated ≥50/25, Non-Regulated ≥100/35)

Step 4: Check Exemptions

• Exports >75% → Audit exempt

• SEZ → Audit exempt

• Captive Power → Audit exempt

Step 5: Documentation

• Cost Records CRA‑1

• Cost Auditor Appointment CRA‑2

• Filing CRA‑3 / CRA‑4

Step 6: Monitor FY Transitions

• FY 2024‑25 vs FY 2025‑26 → Revised MSME limits reduce compliance automatically

Practical Examples

1. Telecom Co FY 2024‑25, ₹60 cr turnover, 80% domestic

   • Records: Required

   • Audit: Required

2. Textile Co FY 2025‑26, ₹90 cr turnover

   • MSME Small → ✅ Fully exempt

3. Pharma Co FY 2025‑26, ₹450 cr turnover, 80% exports

   • Records: Required

   • Audit: Exempt (>75% export)

4. Infra Co FY 2025‑26, ₹110 cr turnover, non-regulated product ₹40 cr

   • Records: Required

   • Audit: Applies only if product turnover ≥ ₹35 cr

Key Takeaways

• MSME revision significantly reduces compliance burden for FY 2025‑26

• Medium enterprises are primary focus for cost records & audit

• Exports, SEZ, captive power offer statutory exemptions

• Always maintain cost records; audit may be exempt but records are evidence for statutory scrutiny

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