Rules explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rules 1 to 3 of the Companies (Cost Records and Audit) Rules, 2014 set the stage for cost accounting under section 148 of the Companies Act, 2013. They give the short title, the key definitions and, in rule 3, the list of sectors whose companies must keep cost records once their turnover reaches the printed limit. This article is as amended up to G.S.R. 361(E) dated 30 May 2025 (forms); the rule text is per the MCA e-book. Later amendments should be checked before you rely on it, and our compliance advisory team can help you apply it.
Rule 3 requires companies in the listed sectors, including foreign companies, to include cost records in their books of account when their overall turnover from all products and services in the immediately preceding financial year is rupees thirty five crore or more. The sectors are split into Table (A), regulated sectors, and Table (B), non-regulated sectors. A company classified as a micro enterprise or a small enterprise is outside the rule. Whether a cost audit is also compulsory is a separate test, covered in the next article.
Rule 1: short title and commencement
The rules may be called the Companies (Cost Records and Audit) Rules, 2014 and came into force on the date of publication in the Official Gazette. They were notified on 30 June 2014 as G.S.R. 425(E), in exercise of the powers under section 469 and section 148 of the Act. The notification supersedes the Companies (Cost Accounting Records) Rules, 2011, the Companies (Cost Audit Report) Rules, 2011 and the five industry-specific cost accounting records rules of 2011 (telecommunication, petroleum, electricity, sugar, fertilizer and pharmaceutical), except for things done or omitted before the supersession.
Rule 2: the definitions that matter
| Term | What rule 2 says |
|---|---|
| "Act" | The Companies Act, 2013 |
| "Customs Tariff Act Heading" | The heading referred to in the Additional Notes in the First Schedule to the Customs Tariff Act, 1975 |
| "Cost Accountant in practice" | A cost accountant under the Cost and Works Accountants Act, 1959 who holds a valid certificate of practice and is deemed to be in practice; includes a firm or limited liability partnership of cost accountants |
| "cost auditor" | A Cost Accountant in practice appointed by the Board |
| "cost audit report" | The duly signed cost auditor's report on the cost records examined and the cost statements prepared under these rules, including attachments, annexures, qualifications or observations (as substituted in 2016 and already in the text) |
| "cost records" | Books of account relating to utilisation of materials, labour and other items of cost, as applicable to the production of goods or provision of services, as provided in section 148 and these rules |
| "institute" | The Institute of Cost Accountants of India |
Rule 2 also defines "form" as a form annexed to the rules, "Indian Accounting Standards" by reference to the Companies (Indian Accounting Standards) Rules, 2015, and says words not defined take their meaning from the Act or the Companies (Specification of Definition Details) Rules, 2014.
Rule 3: the turnover test
Rule 3 operates for the purposes of section 148(1) of the Act. It applies to a class of companies, including foreign companies defined in section 2(42) of the Act, that are engaged in the production of goods or the provision of services specified in the table and whose overall turnover from all products and services in the immediately preceding financial year is rupees thirty five crore or more. Such companies must include cost records for those products or services in their books of account.
Two points of reading matter:
- The turnover is the overall turnover from all products and services, not only the turnover of the listed product.
- The test looks at the immediately preceding financial year, so it is applied afresh each year.
Table (A): regulated sectors
The six entries are telecommunication services regulated by the Telecom Regulatory Authority of India, generation, transmission, distribution and supply of electricity regulated under the Electricity Act, 2003, petroleum products, drugs and pharmaceuticals, fertilisers, and sugar and industrial alcohol. The table gives tariff headings for most of them, for example 2709 to 2715 for petroleum products and 3102 to 3105 for fertilisers; for telecommunication, "Not applicable" is printed.
Table (B): non-regulated sectors
Table (B) lists thirty-three entries. In groups, they cover:
| Group | Entries (by sector name) |
|---|---|
| Defence and aerospace | Machinery used in defence, space and atomic energy; turbo jets and turbo propellers; arms, ammunition and explosives; propellant powders and detonators; radar and radio apparatus; armoured fighting vehicles funded ninety per cent or more by Government or its agencies |
| Services | Port services (services rendered for a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports); aeronautical services at the airports regulated by the Airports Economic Regulatory Authority; roads and infrastructure projects; construction; health services; education services (other than philanthropy or social spend that is not part of a business) |
| Metals, minerals and fuels | Iron and steel; base metals; ores and mineral products; cement; mineral fuels other than petroleum; glass |
| Chemicals and materials | Inorganic and organic chemicals; insecticides; plastics and polymers; rubber and allied products; tyres and tubes; pulp and paper; edible oil; milk powder |
| Agro and textiles | Coffee and tea; jute and jute products; textiles |
| Machinery, rail and electricals | Railway and tramway locomotives and rolling stock; other machinery and mechanical appliances; electrical and electronic machinery |
| Medical devices | Production, import and supply or trading of the listed devices, such as cardiac stents, catheters, heart valves, orthopaedic implants and pacemakers |
The table prints "Customs Tariff Act Heading" numbers against most entries. Some references are old; read the current customs tariff law for the corresponding headings before relying on a heading to claim or deny coverage. The sector description is the first thing to match.
The two provisos
- Nothing in serial number 33 (medical devices) applies to foreign companies having only liaison offices.
- Nothing in rule 3 applies to a company classified as a micro enterprise or a small enterprise, including as per the turnover criteria under section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006.
A worked example
Anand Metals Private Limited makes steel products and had overall turnover of rupees forty crore from all products in the last financial year. Iron and steel is an entry in Table (B), and forty crore is above thirty five crore, so the company must include cost records in its books of account for the next year, unless it is classified as a micro or small enterprise. Meera Textiles Limited, a textile maker with turnover of rupees thirty crore, falls below the limit and is outside rule 3 for that year, although the position is tested again after each financial year.
Where this fits
Keeping cost records is the first step. Cost audit applies on the higher thresholds of rule 4, with records kept in Form CRA-1 under rule 5, and rule 6 deals with the appointment of the cost auditor. Read them in order in our articles on cost audit thresholds and CRA-1 records and appointing the cost auditor. The Act side is in section 148 of the Companies Act, 2013, and a plain-language overview is in cost audit applicability and compliance.
Need help with cost records?
If you are unsure whether your products or services fall in Table (A) or Table (B), or how turnover is to be counted across product lines, our compliance advisory team can review your activities against rule 3 and set up the record-keeping routine.
Key takeaways
- Rule 3 reaches the listed sectors, including foreign companies, at overall turnover of rupees thirty five crore or more in the immediately preceding financial year.
- Table (A) lists six regulated sectors; Table (B) lists thirty-three non-regulated entries.
- Micro and small enterprises are outside the rule, and serial 33 does not apply to foreign companies with only liaison offices.
- Cost records are books of account on materials, labour and other costs; cost audit is a separate, higher test.
- Tariff headings in the table should be checked against current tariff law.
Read next
- Rules 4 and 5: cost audit thresholds and CRA-1 records
- Rule 6: appointing the cost auditor, CRA-2, CRA-3 and CRA-4
- Section 148 of the Companies Act, 2013: cost audit
- Cost audit applicability and compliance
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.