Establish Rule 3 coverage before testing audit
Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 asks a different question from Rule 3. First establish the actual listed activity, tariff mapping and applicable exclusions, including micro/small-enterprise treatment where relevant. Only then apply the audit test. This guide, checked on 5 November 2026, isolates the threshold and exemption working; it does not prescribe current auditor-appointment forms, filing dates or relief from late fees. Section 148 of the Companies Act provides the statutory basis. Use the amended Rule 3 coverage and Rule 4 audit tests. For tariff mapping, use the Customs Tariff Act headings and applicable Table B amendments rather than the older Central Excise labels in historical compilations.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
Apply both gates for the relevant table
For a company specified in Rule 3 Table A, Rule 4(1) requires overall annual turnover of at least ₹50 crore and aggregate covered-product/service turnover of at least ₹25 crore. Table B uses ₹100 crore overall and ₹35 crore covered under Rule 4(2). Both conditions must be met. Use the immediately preceding financial year: FY 2025–26 figures support an FY 2026–27 threshold working. The covered amount is part of overall turnover; adding the two thresholds is not a statutory test.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
Reconcile all turnover and covered turnover
Build an all-products/services column and a separately mapped covered-activities column. Unlisted turnover can contribute to the overall gate without itself becoming a covered activity. Aggregate relevant covered lines rather than requiring each line individually to reach the covered threshold. The examples assume independently established Rule 3 coverage, no micro/small-enterprise exclusion, covered activities falling only within the stated table and no other exemption unless stated. Mixed Table A/B operations require their own supported combined analysis; do not generalise a single-table example to them.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
The export exception uses more than 75%
Rule 4(3)(i) addresses foreign-exchange export revenue exceeding 75% of total revenue. Exactly 75% fails that strict comparison. Reconcile the numerator’s export character and foreign-exchange support; a foreign receipt is not automatically export revenue. The Institute’s published guidance explains total revenue as operating revenue plus other income. It also interprets the export percentage by reference to the specific products/services covered by Rule 3, excluding unlisted activities from that working. Keep this Institute guidance distinct from the company-level wording of Rule 4(3)(i), and document the reconciliation for a mixed business instead of combining unrelated export receipts with covered revenue. Do not silently omit other income to inflate the percentage. Retain numerator and denominator in unrounded amounts, because a rounded 75% display can conceal a material boundary difference.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
Separate audit exceptions from records duties
Rule 4(3) also refers to operation from a special economic zone and generation for captive consumption through a Captive Generating Plant that meets Rule 3 of the Electricity Rules, 2005 as applicable to the period. G.S.R. 186(E) substituted that rule in March 2026, with specified provisions commencing on 1 April 2026. Do not infer qualifying captive generation merely from internal use of purchased power. The Institute’s published guidance distinguishes mixed SEZ/non-SEZ units rather than treating one SEZ unit as blanket relief for all activities. An audit exception does not itself erase an independently applicable Rule 3 cost-records obligation.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
Close an applicability memo rather than a bare tick box
Keep the classification conclusion, source year, turnover bridge, covered-line mapping and exemption documents together. The initial 2014 strategic-industry/net-worth framework must not be substituted for the amended turnover tests. G.S.R. 361(E) substituted forms CRA-2 and CRA-4 with effect from 14 July 2025. It amended the forms rather than Rule 4’s threshold tests. Use the applicable filing materials separately when implementing a positive audit conclusion. This threshold decision neither creates a filing extension nor establishes that every company with significant turnover falls within Rule 3.
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Table A at both inclusive boundaries
Assume valid Rule 3 coverage. Overall turnover ₹50 crore and covered turnover ₹25 crore satisfy both gates. Covered turnover is already within overall turnover; their arithmetic sum ₹75 crore is not an additional legal threshold.
Illustrative example 2: Covered turnover below its gate
Table A overall turnover is ₹80 crore and covered turnover ₹24.90 crore. The latter is short by ₹0.10 crore, or ₹10 lakh. Rule 4(1)’s two-gate test fails on these facts despite the larger overall figure.
Illustrative example 3: Table B covered-line aggregation
Covered lines ₹18 crore and ₹17 crore total ₹35 crore. Unlisted turnover ₹65 crore brings overall turnover to ₹100 crore. Both gates are reached; neither covered line needs an individual ₹35 crore turnover.
Illustrative example 4: Overall gate narrowly missed
Table B covered turnover ₹40 crore plus other turnover ₹59.99 crore equals ₹99.99 crore, ₹1 lakh below ₹100 crore. Covered turnover alone does not trigger the two-gate test.
Illustrative example 5: Exactly 75% is insufficient
Assume thresholds are met and all the stated revenue belongs to the relevant covered-activity working, with no unlisted activity. Foreign-exchange exports ₹90 crore, domestic operating revenue ₹28 crore and other income ₹2 crore give total revenue ₹120 crore. Ratio is exactly 75%, so the exception requiring more than 75% is not met.
Illustrative example 6: Supported percentage above 75%
On the same covered-activity assumption, with total revenue ₹120 crore, qualifying exports ₹90.12 crore and remaining revenue ₹29.88 crore give 75.10%. This exceeds 75% by 0.10 percentage point. Assume the export evidence is valid: the Rule 4 export audit exception applies, while the separate records obligation still requires observance.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Establish Rule 3 scope | Keep listing, activity and exclusion analysis. |
| 2 | Fix the financial year under review | Identify the immediately preceding financial year for turnover. |
| 3 | Classify the relevant table | Retain Table A or B mapping. |
| 4 | Reconcile overall turnover | Tie all-product/service figures to financial records. |
| 5 | Aggregate covered lines | Prevent omissions and duplicate counting. |
| 6 | Apply both gates | Use inclusive ₹50/25 crore or ₹100/35 crore tests as applicable. |
| 7 | Support the export numerator | Retain export and foreign-exchange evidence and the covered-activity mapping under the Institute guidance. |
| 8 | Build total revenue | Reconcile operating revenue and other income on the documented covered-activity basis. |
| 9 | Document other exceptions | Analyse actual SEZ units or qualifying captive-generation facts. |
| 10 | Approve the conclusion | Keep records duties separate and route audit applicability to the compliance owner. |
Sixteen practitioner FAQs
1. Does cost records coverage always require audit?
No. Rule 4 adds its own tests and exceptions.
2. What are Table A’s figures?
At least ₹50 crore overall and ₹25 crore covered turnover.
3. What are Table B’s figures?
At least ₹100 crore overall and ₹35 crore covered turnover.
4. Are the two figures alternatives?
No. Both conditions matter.
5. Which year supplies threshold turnover?
The immediately preceding financial year.
6. Does equality qualify for turnover gates?
Yes. The thresholds use or more.
7. Must each covered line individually reach the minimum?
No. The rule refers to aggregate covered turnover.
8. Does unlisted turnover count in overall turnover?
Yes, although it does not thereby become a covered activity.
9. Does exactly 75% qualify for the export exception?
No. Export revenue must exceed 75% of total revenue.
10. Can other income be omitted from the denominator?
Do not do so merely to increase the percentage; reconcile total revenue using the Institute’s guidance.
11. Is every foreign receipt export revenue?
No. Substantiate both its export nature and foreign-exchange basis.
12. Does audit relief remove records duties?
Not by itself. Retain the separate Rule 3 analysis.
13. Does one SEZ unit exempt every unit?
Do not assume that; the Institute guidance distinguishes non-SEZ units.
14. Does purchased electricity establish captive generation?
No. Examine the qualifying plant definition and facts.
15. Can initial strategic-industry tests replace amended Rule 4?
No. Use the amended turnover framework.
16. Does this memo grant a filing extension?
No. Forms, deadlines and any relief need separate current-source verification.
Official sources
Institute of Cost Accountants: amended Rule 4 and applicability guidance Institute current cost-rules resource page
- 2017 amendment: G.S.R. 1498(E)
- 2017 second amendment: Customs Tariff Act mapping
- 2018 amendment: Rule 3 Table B and Rule 6
- 2019 Gazette amendment: CRA-1 and CRA-3 (copy)
- 2025 Gazette amendment: CRA-2 and CRA-4 (copy)
- Ministry of Power: substituted captive generation rule
- Companies Act, section 148
- ICMAI Members’ Handbook: Rule 4 applicability