Rules 4 and 5 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.
Rule 4 decides which of the companies covered by rule 3 must get their cost records audited, and rule 5 requires every covered company to maintain cost records in Form CRA-1. 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; for the books side, see our books of accounts compliance service.
Rule 4 uses two turnover tests together. A Table (A) regulated-sector company needs a cost audit if its overall annual turnover in the immediately preceding financial year is rupees fifty crore or more and the turnover of the products or services under rule 3 is rupees twenty five crore or more. For a Table (B) company the figures are rupees one hundred crore and rupees thirty five crore. Companies with export revenue above seventy five per cent, companies in a Special Economic Zone and captive power generators are exempt from the audit, but not from keeping records.
Rule 4(1): regulated sectors, item (A)
Every company specified in item (A) of rule 3 must get its cost records audited in accordance with the rules if both conditions are met:
- overall annual turnover from all its products and services during the immediately preceding financial year is rupees fifty crore or more; and
- the aggregate turnover of the individual product or products or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more.
Rule 4(2): non-regulated sectors, item (B)
The same two-part test applies to a company in item (B) of rule 3, with higher figures: overall annual turnover of rupees one hundred crore or more and aggregate turnover of the rule 3 products or services of rupees thirty five crore or more.
| Item of rule 3 | Overall annual turnover | Turnover of the rule 3 products or services |
|---|---|---|
| (A) Regulated sectors | Rupees fifty crore or more | Rupees twenty five crore or more |
| (B) Non-regulated sectors | Rupees one hundred crore or more | Rupees thirty five crore or more |
Both limbs must be met. A telecom company with overall turnover of rupees sixty crore, of which rupees twenty crore comes from the regulated services, passes the first limb but not the second, so no cost audit follows, although rule 3 may still require cost records.
Rule 4(3): three exemptions
The cost audit requirement does not apply to a company covered in rule 3 if:
- its revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or
- it is operating from a Special Economic Zone; or
- it is engaged in generation of electricity for captive consumption through a Captive Generating Plant, a term that has the meaning given in rule 3 of the Electricity Rules, 2005.
These are exemptions from the audit only. Rule 4(3) does not say a company stops maintaining cost records because it is exempt. Read it with rule 3 and rule 5.
Rule 5: maintaining cost records in CRA-1
Rule 5(1) requires every company under these rules, including all units and branches, to maintain cost records in Form CRA-1 for each financial year commencing on or after 1 April 2014. The form reference was substituted in 2017. A proviso gives later start dates: for companies at serial number 12 and serial numbers 24 to 32 of item (B) of rule 3, the requirement applies to each financial year commencing on or after 1 April 2015.
Rule 5(2) says the records must be kept on a regular basis, so that the company can calculate per unit cost of production or cost of operations, cost of sales and margin for each product and activity for every financial year, on a monthly, quarterly, half-yearly or annual basis. Rule 5(3) adds that the records must be kept so that the company can, as far as possible, exercise control over operations and costs to achieve optimum economies in utilisation of resources, and must provide the data to be furnished under the rules.
What the 2019 notification changed in CRA-1
The Companies (Cost Records and Audit) Amendment Rules, 2019, notified as G.S.R. 792(E) on 15 October 2019, amended paragraph 7 of Form CRA-1, replacing certain sub-paragraphs on overheads (production, administration and selling and distribution overheads). It was deemed to have come into force on 1 April 2018. It also says companies that had already filed their cost audit report in Form CRA-4 for the financial year 2018-19 before the notification was published need not file it again for that year. This is a change to the form; the rule text of rule 5 is unchanged.
Putting rules 3, 4 and 5 together
| Question | Rule | Answer |
|---|---|---|
| Is the company in a listed sector with turnover of rupees thirty five crore or more? | Rule 3 | If yes, keep cost records |
| Does it pass the two-part turnover test for its item? | Rule 4(1) or (2) | If yes, cost audit applies |
| Is it an exporter above seventy five per cent, in an SEZ, or a captive generator? | Rule 4(3) | If yes, no cost audit, but records stay |
| In what form are records kept? | Rule 5 | Form CRA-1, from the printed financial year |
A worked example
Veda Pharma Limited, a drugs and pharmaceuticals company in item (A), had overall turnover of rupees seventy crore last year, and the pharmaceutical products under rule 3 accounted for rupees thirty crore. Both limbs are met, so its cost records must be audited. Had more than seventy five per cent of its revenue come from exports in foreign exchange, rule 4(3) would exempt it from the audit, while the cost records in CRA-1 would still need to be kept.
For the earlier step, see our article on which companies must keep cost records; for what follows, see appointing the cost auditor. The Act's provision is explained at section 148 of the Companies Act, 2013.
Need help with cost audit and cost records?
Working out which turnover counts, and whether an exemption applies, is where most mistakes occur. Our books of accounts compliance team can review your product-wise turnover, tell you whether rule 4 is triggered and set up CRA-1 compliant records.
Key takeaways
- Item (A) companies: overall turnover of rupees fifty crore or more and rule 3 turnover of rupees twenty five crore or more.
- Item (B) companies: overall turnover of rupees one hundred crore or more and rule 3 turnover of rupees thirty five crore or more.
- Exempt from audit: exports above seventy five per cent of total revenue, SEZ units and captive power generation.
- Records in Form CRA-1 cover all units and branches and must support per unit costing.
- The 2019 change to CRA-1 touches the overheads paragraphs only.
Read next
- Rules 1-3: which companies must keep cost 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.