Cost Audit Applicability 2026: Section 148, the End-September CRA-2 Deadline and the Rs 5 Lakh Penalty Most Companies Forget

By CS Sapna Malpani, Practising Company Secretary, Bangalore · Last updated 8 August 2026

A pharmaceutical company in Peenya crossed Rs 120 crore in turnover last year and never once thought about a cost auditor. Their statutory auditor signed off, the AGM went through, AOC-4 was filed. Nine months later a notice from the Registrar landed, asking why no cost audit report had been filed under Section 148. The company was staring at a penalty that runs up to Rs 5,00,000, plus a daily late fee with no cap. Cost audit applicability catches companies exactly like this one, and the appointment window for the current financial year closes at the end of September 2026. If your turnover is in the Rs 50 crore to Rs 500 crore band, this deadline has your name on it.

Why cost audit applicability trips up mid-sized companies

Most finance teams treat “audit” as one thing: the statutory audit their CA signs. Section 148 of the Companies Act, 2013 sits apart from that. It requires a separate cost auditor, a separate report, and a separate MCA filing, and it applies only to companies in named sectors once they cross a turnover line. Because it is sector-linked, plenty of otherwise well-run companies never realise they are inside the net until the Registrar asks.

The Ministry of Corporate Affairs has made this harder to ignore. Through 2024 and 2025 the MCA ran a drive of show-cause notices against companies that failed to file Form CRA-4, the cost audit report, and moved penalty orders onto its online e-adjudication platform. A company that maintains cost records but skips the cost audit, or files CRA-4 months late, now gets caught by data the ministry already holds from its own filings. The gap between “we didn’t know it applied” and “the order is passed” has shrunk to a single financial year.

The money is real. Default under Section 148 is punishable under Section 147: a fine from Rs 25,000 up to Rs 5,00,000 on the company and from Rs 10,000 up to Rs 1,00,000 on every officer in default. Late filing of CRA-2 or CRA-4 carries its own additional fee that accrues each day the form is pending. For a company that has been non-compliant across two or three years, the numbers add up fast, and the cost auditor who fails in their duty faces a penalty of their own.

Cost audit applicability at a glance

Exemptions under Rule 4(3): companies with more than 75% of revenue from exports in foreign exchange, companies operating from a Special Economic Zone, and companies generating electricity purely for captive use.

What changed, and why September 2026 matters

Two things have moved. First, the MCA revised the cost audit forms. The Companies (Cost Records and Audit) Amendment Rules, 2025, which took effect from 14 July 2025, substituted Forms CRA-2 and CRA-4 with updated versions. Any company preparing to file this year is working with the new formats, and templates saved from earlier years no longer match the portal.

Second, enforcement has tightened. The ministry’s show-cause notice drive on cost audit non-compliance means the old habit of “we’ll file when someone asks” now ends in an adjudication order rather than a reminder. The e-adjudication platform processes these faster, and the officer in default is named alongside the company.

The date that should be circled on every affected company’s calendar is the 180-day appointment window. The board must appoint the cost auditor within 180 days from the start of the financial year, and Form CRA-2 has to reach the Registrar within 30 days of that board meeting or within 180 days of the year’s start, whichever is earlier. For a company on the April-March year, the financial year 2026-27 began on 1 April 2026, so the 180-day line falls in the last week of September 2026. Miss it and you are late on day one of a chain that runs all the way to CRA-4.

The four CRA forms, in order

What you must do now: the cost audit checklist

1. Classify your product or service. Pull up Table A and Table B of Rule 3. Match your main lines of business against the CETA headings listed there. A company can sit in both tables if it makes more than one type of product. If nothing matches, cost records and cost audit do not apply, but record that conclusion in a board note so you can show your working later.
2. Run the two turnover tests. Take the preceding financial year’s figures. Test one: does overall turnover cross Rs 35 crore (cost records)? Test two: for cost audit, does overall turnover cross Rs 50 crore (regulated) or Rs 100 crore (non-regulated), and does the specific product or service cross Rs 25 crore or Rs 35 crore? Both limbs of the second test must be met.
3. Check the three exemptions. More than 75% export revenue in foreign exchange, an SEZ unit, or captive electricity generation each take you out of the cost audit requirement. Confirm the numbers before you rely on any of them.
4. Identify a Cost Accountant. Only a Cost Accountant in practice, or a firm of Cost Accountants, can be appointed. Your statutory auditor cannot double up as the cost auditor. Get their eligibility letter and consent on file.
5. Pass the board resolution before end September. The board appoints the cost auditor and fixes the remuneration within 180 days of the year start. Members ratify the remuneration afterward. This resolution is the anchor for the whole cycle, so do not let it slip.
6. File Form CRA-2. Intimate the Registrar within 30 days of the board meeting or 180 days of the year start, whichever comes first. Use the revised 2025 form. A late CRA-2 attracts a per-day additional fee.
7. Maintain records in CRA-1 format through the year. Cost records are not a year-end exercise. If the auditor arrives to find nothing kept in CRA-1 format, the report itself becomes a problem.
8. Track CRA-3 and CRA-4 dates. The auditor gives the report within 180 days of the year end; the company files CRA-4 in XBRL within 30 days of receiving it. Put both dates in your compliance calendar the day you appoint the auditor.

The single most common error is treating the September appointment as optional because “the audit report is only due next year”. The chain fails at the first link. No CRA-2 on time means every downstream date is already tainted, and the penalty attaches to the default, not to your good intentions.

The deeper implication for growing companies

According to CS Sapna Malpani, the companies most exposed to cost audit are not the ones who have ignored the law for years. They are the ones who grew past a turnover line last year and never re-checked their obligations. A manufacturer that jumped from Rs 80 crore to Rs 110 crore, a pharma unit that added a second product, a startup that scaled its hardware revenue past Rs 100 crore: each of them crossed into Section 148 quietly, without any single event flagging it. The trigger is turnover growth, which is exactly what a successful company produces.

Looking ahead, expect the MCA to keep leaning on its own data. The ministry already knows a company’s turnover from AOC-4 and its sector from incorporation records. Matching those two fields against the list of cost-record filers is a straightforward exercise, and the e-adjudication platform is built to act on the mismatches. Companies that self-assess their applicability each year, right after finalising accounts, will stay ahead of that matching. Those who wait for the notice will pay for the delay.

Cost audit vs the other audits companies confuse it with

Four different audits sit in the Companies Act, and finance teams mix them up often.

A company can be inside all four at once. Being audited by your CA says nothing about whether Section 148 applies. The cost audit runs on its own sector-and-turnover logic and needs its own professional.

Key takeaways

Sources and references

• India Code, Companies Act, 2013, Section 148
• Companies (Cost Records and Audit) Rules, 2014, Rule 4 (CAIRR / ca2013.com)
• Rule 4, Companies (Cost Records and Audit) Rules, 2014 (Indian Kanoon)
• MCA updates cost audit rules, CRA-2 and CRA-4 revised, 14 July 2025 (TaxGuru)
• MCA issues show-cause notices for cost audit non-compliance (TaxGuru)
• Companies (Cost Records and Audit) Rules, 2014, ICMAI text

Frequently asked questions on cost audit applicability

1. What is cost audit applicability under Section 148?

Cost audit applicability is decided by Section 148 read with the Companies (Cost Records and Audit) Rules, 2014. A company must first fall within a specified sector listed in Table A (regulated) or Table B (non-regulated) of Rule 3. If it does and its overall turnover crosses Rs 35 crore, it maintains cost records. Cost audit itself becomes mandatory once overall turnover reaches Rs 50 crore for a regulated sector or Rs 100 crore for a non-regulated sector, and the specific product or service crosses Rs 25 crore or Rs 35 crore respectively. A company outside the listed sectors does not attract cost audit at all.

2. What is the CRA-2 filing deadline for FY 2026-27?

The board must appoint the cost auditor within 180 days of the start of the financial year, and Form CRA-2 must reach the Registrar within 30 days of that board meeting or within 180 days of the year’s start, whichever is earlier. For companies on the April-March year, FY 2026-27 began on 1 April 2026, so the 180-day window closes in the last week of September 2026. Filing CRA-2 after that attracts a per-day additional fee, and it also delays the rest of the cost audit cycle.

3. What is the penalty for cost audit non-compliance?

Default under Section 148 is punishable under Section 147. The company can be fined between Rs 25,000 and Rs 5,00,000, and every officer in default can be fined between Rs 10,000 and Rs 1,00,000. Late filing of CRA-2 or the cost audit report in CRA-4 carries additional fees that accrue daily. The cost auditor who fails in their duty faces a separate penalty. The MCA has been issuing show-cause notices and passing orders through its online e-adjudication platform, so non-filing is now acted on rather than merely flagged.

4. Can my statutory auditor also do the cost audit?

No. The cost audit under Section 148 must be conducted by a Cost Accountant in practice or a firm of Cost Accountants, and this person cannot be the company’s statutory auditor. The two audits are separate obligations with separate professionals, separate reports and separate MCA filings. A common and costly assumption is that the Chartered Accountant who signs the financial statements has covered the cost audit as well. They have not.

5. Which sectors need cost records and cost audit?

Regulated sectors under Table A include telecommunication, generation and distribution of electricity, petroleum products, drugs and pharmaceuticals, fertilisers, and sugar and industrial alcohol. Non-regulated sectors under Table B cover a much longer list, including cement, steel, machinery, rubber, paper, textiles, milk powder, medical devices and construction. If your main products or services appear in either table and you cross the turnover thresholds, cost records and, at the higher limits, cost audit apply.

6. Are there exemptions from cost audit?

Yes. Under Rule 4(3), a company is exempt from cost audit if more than 75% of its revenue comes from exports in foreign exchange, if it operates from a Special Economic Zone, or if it generates electricity solely for captive consumption. These exemptions apply to the cost audit requirement; the obligation to maintain cost records can still stand depending on your figures, so confirm both positions rather than assuming one exemption clears everything.

7. What happens after the cost auditor gives the report?

The cost auditor submits the report to the board in Form CRA-3 within 180 days of the financial year end. The company then files the report with the MCA in Form CRA-4, in XBRL format, within 30 days of receiving it. Both dates should sit in your compliance calendar from the day you appoint the auditor, because the CRA-4 clock starts the moment the board receives CRA-3, not when it is convenient to file.