Published 10 October 2026
The composition scheme is chosen in a single online form that no officer approves. That simplicity hides two difficulties. The deadline falls before the year the choice is for begins, so a business deciding in April is a year late. And because no one checks eligibility at the start, mistakes surface later, sometimes as an order denying the scheme from the date it was first opted. Leaving the scheme has its own timing rule, and credit on stock depends on a statement filed within thirty days.
This guide sets out the procedure for opting in, staying in and getting out. The general application steps are in Applying for GST Registration: the Steps Every Applicant Takes.
Who may opt
Section 10(1) of the CGST Act allows a registered person “whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees” to pay tax at a prescribed rate in lieu of normal tax. The Government may raise that limit to one crore and fifty lakh rupees. Notification No. 14/2019-Central Tax did so from 1 April 2019, with a limit of seventy-five lakh rupees for persons registered in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.
The same notification bars manufacturers of ice cream and other edible ice, pan masala, and tobacco and manufactured tobacco substitutes. Aerated water was added from 1 October 2019 (Notification No. 43/2019-Central Tax). Fly ash bricks, aggregates and blocks, bricks of fossil meals, building bricks, and earthen or roofing tiles were added from 1 April 2022 (Notification No. 04/2022-Central Tax).
Section 10(2) adds the other conditions. The person must not:
- supply services, except as the second proviso allows
- supply services not leviable to tax under the Act
- make inter-State outward supplies of goods or services
- supply services through an operator that collects tax under section 52
- manufacture notified goods
- be a casual or non-resident taxable person
The second proviso lets a composition taxpayer supply services, other than restaurant supplies, “of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher”.
Selling goods online. Section 137(a) of the Finance Act, 2023 provides that “in sub-section (2), in clause (d), the words ‘goods or’ shall be omitted”, from 1 October 2023. A composition taxpayer may therefore now sell goods through an e-commerce operator, but not services. The CBIC’s published text of section 10(2), as accessed on 10 October 2026, places that omission against clause (b) and still shows “goods [or services]” in clause (d). The Finance Act’s wording is the authority. Registering as an E-Commerce Operator Collecting TCS covers the operator’s side.
Service providers. Section 10(2A) offers a separate option to a person not eligible under sub-sections (1) and (2), typically a supplier of services, whose aggregate turnover in the preceding year “did not exceed fifty lakh rupees”. It carries parallel exclusions: no non-taxable supplies, no inter-State outward supplies, no services through a TCS-collecting operator, no notified goods or services, and no casual or non-resident taxable persons.
One PAN, one choice. The provisos to both sub-sections bar the option unless every registration on the same PAN opts in. Rule 3(5) and rule 6(7) of the CGST Rules apply the same principle to intimations and withdrawals. The portal’s FAQs add that the option is unavailable if any registration on the PAN is an SEZ unit or developer.
The rates in rule 7
Rule 7, in the form substituted from 1 April 2020, prescribes the rates of central tax:
| Category | Rate (central tax) |
|---|---|
| Manufacturers, other than of notified goods | half per cent of turnover in the State or Union territory |
| Suppliers of restaurant-type supplies under paragraph 6(b) of Schedule II | two and a half per cent of turnover |
| Any other supplier eligible under section 10(1) and (2) | half per cent of turnover of taxable supplies of goods and services |
| Persons opting under section 10(2A) | three per cent of turnover of supplies of goods and services |
Tax under the State or Union territory law is payable in addition. The rate rationalisation notified on 17 September 2025, effective 22 September 2025, replaced the general rate schedules. A search of the Central Tax and Central Tax (Rate) notifications issued in 2025 and 2026 found no amendment to rule 7 or to Notification No. 14/2019-Central Tax. The CBIC text of rule 7 shows no change after 2020.
Route one: at the time of registration
A person applying for registration may choose composition in the application itself. Rule 3(2) treats the option given “in Part B of FORM GST REG-01” as the intimation. Part B carries an “Option for Composition” question, a composition declaration and a choice of category.
Rule 4(2) provides that this option “shall be considered only after the grant of registration”. It is effective from the date fixed under rule 10(2) or (3): the date of liability if the application was made within thirty days, otherwise the date of grant. Because REG-01 is an ordinary application, the usual Aadhaar authentication, document uploads and possible physical verification with geotagged photographs all apply, as described in the common steps guide.
Route two: an existing registrant, FORM GST CMP-02
A registered person moving from normal tax files FORM GST CMP-02 “prior to the commencement of the financial year for which the option … is exercised” (rule 3(3)). Under rule 4(1), the option is then effective “from the beginning of the financial year”. For the year 2027-28, that means filing by 31 March 2027.
The portal’s user manual describes the steps.
- After login, the applicant goes to Services, Registration, “Application to Opt for Composition Levy”.
- The GSTIN, names, address and jurisdiction appear pre-filled.
- The applicant chooses Category A, under section 10(1), with its three sub-categories, or Category B, under section 10(2A).
- The portal blocks the application if goods or services in the registration’s HSN list are ineligible. A manufacturer must also tick a confirmation that it does not manufacture the excluded goods.
- The portal rejects the application if the previous year’s aggregate turnover of all registrations on the PAN exceeds the limit.
- The applicant ticks the declaration and verification, selects the authorised signatory, and submits with a DSC, e-signature or EVC. The ARN follows within fifteen minutes.
The portal’s FAQs state that the application “is not subject to approval by the tax authorities”. A saved draft is purged after fifteen days.
Stock and credit already taken. A person who has taken input tax credit and opts in must pay back an amount equal to the credit on inputs and capital goods in stock, under section 18(4). Rule 3(3) requires the statement in FORM GST ITC-03 “within a period of sixty days from the commencement of the relevant financial year”. Rule 44(4) makes the amount part of output tax liability. Where invoices are unavailable and the amount is estimated at market price, rule 44(5) requires certification by a practising chartered accountant or cost accountant.
FORM GST CMP-03 is not the stock form for today’s applicants
CMP-03 is often described as the stock statement for opting in. Rule 3(4) confines it to “any person who files an intimation under sub-rule (1)”. Sub-rule (1) covers persons migrating from the pre-GST laws with intimations in FORM GST CMP-01 around the appointed day in 2017. The form’s own heading says it is “Only for persons registered under the existing law migrating on the appointed day”. A registered person opting in today files ITC-03, not CMP-03.
Declarations and documents
No documents are uploaded with CMP-02 or CMP-04. The following are prescribed:
- CMP-02 item 8: “the aforesaid business shall abide by the conditions and restrictions specified for paying tax under section 10”, with a verification signed by the authorised signatory
- REG-01 Part B item 6: the corresponding composition declaration for new applicants
- Rule 5(1)(f): the words “composition taxable person, not eligible to collect tax on supplies” at the top of every bill of supply
- Rule 5(1)(g): the words “composition taxable person” on a notice or signboard at the principal place and every additional place of business
- Statements: ITC-03 when opting in with credit to reverse, and ITC-01 when leaving and claiming credit, certified where rule 40(1)(d) or rule 44(5) requires
Section 10(4) bars a composition taxpayer from collecting tax or taking input tax credit. It pays quarterly through FORM GST CMP-08 and files an annual return in FORM GSTR-4. Under rule 5(2), no fresh intimation is needed each year.
Leaving by choice: FORM GST CMP-04
Rule 6(3) requires a person intending to withdraw to file CMP-04 “before the date of such withdrawal”. Item 7 of the form asks for the date from which withdrawal is sought.
The portal’s manual and FAQs describe how this works on screen. For a voluntary withdrawal, the date may be the current or a future date but not a past one. The application is “auto approved”, and the taxpayer type in the profile changes to Regular. Withdrawal for one GSTIN removes all GSTINs on the same PAN from the scheme.
Leaving because a condition fails
The scheme lasts only “so long as he satisfies all the conditions” (rule 6(1)). Under rule 6(2), the person is liable to normal tax “from the day he ceases to satisfy any of the conditions”, must issue tax invoices from then, and must file CMP-04 “within seven days of the occurrence of such event”. Section 10(3) applies the same rule to turnover. The option “shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit”.
The portal’s manual says it compares turnover with the limit on login, and shows prompts when 75 per cent and 90 per cent of it has been used and when it has been exceeded. For a non-voluntary reason, the withdrawal date can be a past date but not one before the composition took effect.
Denial by the officer
Where the officer has reason to believe the person was not eligible or has contravened the provisions, rule 6(4) provides for a notice in FORM GST CMP-05, answerable within fifteen days. The reply is in FORM GST CMP-06. Within thirty days of the reply, the officer issues FORM GST CMP-07 either accepting it or denying the option “from the date of the option or from the date of the event concerning such contravention” (rule 6(5)). Section 10(5) adds a penalty, with tax determined under section 73, 74 or 74A. These proceedings are covered in GST notices.
Credit on the way out
Section 18(1)© entitles a person who “ceases to pay tax under section 10” to credit on inputs in stock, inputs in semi-finished and finished goods, and capital goods, held on the day before normal tax begins. Rule 6(6) and rule 40(1)(b) require a declaration in FORM GST ITC-01 within thirty days of the withdrawal or of the CMP-07 order. Rule 40(1)(a) reduces credit on capital goods “by five percentage points per quarter of a year or part thereof” from the invoice date. Rule 40(1)(d) requires certification by a practising chartered accountant or cost accountant where the claim exceeds two lakh rupees. The general conditions for credit are in Input Tax Credit: the Conditions in Section 16.
The procedure in summary
- Test eligibility against section 10(1), (2) or (2A), Notification No. 14/2019-Central Tax as amended, and every registration on the PAN.
- At new registration, choose composition in Part B of REG-01. It takes effect from the registration’s effective date.
- Otherwise, file CMP-02 before the financial year begins, and file ITC-03 within sixty days of its start to pay back credit on stock.
- Issue bills of supply bearing the rule 5 legend, display the signboard, and pay through CMP-08 and GSTR-4.
- To leave voluntarily, file CMP-04 before the chosen date.
- If a condition fails or turnover crosses the limit, move to normal tax from that day and file CMP-04 within seven days.
- If the officer issues CMP-05, reply in CMP-06 within fifteen days. Any denial follows in CMP-07.
- Claim credit on stock in ITC-01 within thirty days of leaving, with certification above two lakh rupees.
The next guide in this set covers amending a registration, including which changes need the officer’s approval and which take effect on filing.