Under the Companies (Cost Records and Audit) Rules, 2014, there is a specific exemption provided for certain categories of MSMEs.1 However, it is important to distinguish between the three levels of MSME (Micro, Small, and Medium) as the exemption does not apply to all of them.2
1. The Exemption for Micro and Small Enterprises
According to Rule 3 of the Companies (Cost Records and Audit) Rules, 2014:
The requirement for maintenance of cost records shall not be applicable to a company which is classified as a Micro enterprise or a Small enterprise as per the turnover criteria under the MSME Development Act, 2006.3
Since the requirement to maintain records (Rule 3) is a prerequisite for a cost audit (Rule 4), any company that qualifies as "Micro" or "Small" is automatically exempt from cost audit, regardless of whether they operate in a regulated or non-regulated sector.4
2. The "Medium" Enterprise Trap
It is a common misconception that all MSME-registered companies are exempt. Medium Enterprises are NOT exempt from cost audit if they meet the turnover thresholds.5
As per the current MSME classification (as of 2025), a "Medium" enterprise is one with a turnover of up to ₹250 Crore (or as per the latest revised limits for 2025). Since the cost audit thresholds for non-regulated sectors start at ₹100 Crore, many "Medium" enterprises will find themselves falling within the mandatory cost audit net.6
3. Summary of Applicability for MSMEs
| MSME Category | Exemption Status | Notes |
| Micro | Fully Exempt | Exempt from both Cost Records (CRA-1) and Cost Audit. |
| Small | Fully Exempt | Exempt from both Cost Records and Cost Audit. |
| Medium | NOT Exempt | Must maintain records if turnover > ₹35 Cr and undergo audit if Rule 4 thresholds are met. |
Key Thresholds for Medium Enterprises
If your company is registered as a Medium MSME, you must still comply with the following if you are in a notified sector:
Cost Records (Form CRA-1): Mandatory if overall turnover is ₹35 Crore or more.
Cost Audit (Regulated Sector): Overall turnover ≥ ₹50 Crore AND individual product turnover ≥ ₹25 Crore.