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Direct and Indirect Taxation · Composition Levy

Effective Date and Procedure for Opting Composition Levy

Updated 10 October 2026 · Fact-checked

A registered person opts for composition by filing an intimation, mainly FORM GST CMP-02, before the financial year starts. Under Rule 4, the option is effective from the beginning of that financial year. A new applicant opts in Part B of FORM GST REG-01, effective from the date fixed in Rule 10.

Understand Effective Date and Procedure for Opting Composition

The composition levy under section 10 is an optional scheme. Because it is optional, the law needs a clear way to say when you joined it, how you stay in it and how you leave it. The CGST Rules 3, 4 and 6 supply these procedures.

Rule 3 (intimation) tells you how to opt. A person already registered files FORM GST CMP-02 on the common portal before the commencement of the financial year for which the option is exercised. Within sixty days from the start of that financial year, the person furnishes FORM GST ITC-03 (the statement of input tax credit to be reversed on stock, as per rule 44(4)). A person who applies for fresh registration under rule 8(1) can opt in Part B of FORM GST REG-01, and that counts as the intimation.

Rule 4 (effective date) answers when the option starts. If you filed CMP-02 under rule 3(3), the option takes effect from the beginning of the financial year. If the intimation was through REG-01 under rule 3(2), it is considered only after registration is granted, and it takes effect from the date fixed under rule 10(2) or (3). Rule 4(1) also links the appointed day to intimations under rule 3(1), which was a transitional provision for persons on provisional registration.

Rule 6 (validity and withdrawal) says the option remains valid as long as you satisfy all conditions of section 10 and the rules. If you stop satisfying any condition, you become liable to pay tax under section 9(1) from that day, must issue tax invoices from then, and must file FORM GST CMP-04 within seven days. If you choose to leave voluntarily, you file CMP-04 before the date of withdrawal. The officer can also issue a show-cause notice in CMP-05, and you reply in CMP-06. The order comes in CMP-07.

A key point: an intimation, withdrawal or denial for one place of business is deemed to apply to all places of business registered on the same PAN (rule 3(5), rule 6(7)).

Key rules to remember

Opting by a registered person
FORM GST CMP-02 before the start of the financial year; ITC-03 within 60 days from the start of that year
Rule 3(3). Rule 4(1): the option is effective from the beginning of the financial year.
Opting at fresh registration
Part B of FORM GST REG-01 = intimation
Rule 3(2). Considered only after registration is granted; effective from the date fixed under rule 10(2) or (3) (Rule 4(2)).
Stock details on opting (provisional registrants, rule 3(1))
FORM GST CMP-03 within 90 days from the date the option is exercised
Rule 3(4). Details of stock held on the day preceding the date of opting, including inward supplies from unregistered persons.
Ceasing to satisfy conditions
Liable under section 9(1) from the day of default; issue tax invoices; file CMP-04 within 7 days
Rule 6(2).
Voluntary withdrawal
Application in FORM GST CMP-04 before the date of withdrawal
Rule 6(3). Signed or verified by EVC, filed electronically.
Officer's denial of option
CMP-05 (show cause, reply within 15 days) → CMP-06 (reply) → CMP-07 (order within 30 days of reply)
Rule 6(4) and (5). Denial can operate from the date of option or from the date of the contravention.
Stock statement after withdrawal or denial
FORM GST ITC-01 within 30 days from the date of withdrawal or the date of the CMP-07 order
Rule 6(6). Covers inputs and inputs contained in semi-finished or finished goods held in stock.
Returns under composition
CMP-08 by the 18th of the month after each quarter; GSTR-4 annually, due 30 June for FY 2024-25 onwards
Rule 62(1). Earlier text gave 30 April; the proviso moves it to 30 June from FY 2024-25.

How to solve Effective Date and Procedure for Opting Composition questions

Use this method for any question on opting, effective date or withdrawal.

  1. 1Identify who the person is: already registered, new applicant, or provisional registrant. This decides the form and the rule.
  2. 2Pick the opting route: CMP-02 for a registered person (rule 3(3)), REG-01 Part B for a new applicant (rule 3(2)).
  3. 3Fix the effective date using Rule 4: start of the financial year for CMP-02; date fixed under rule 10 after registration for REG-01.
  4. 4Check the timing of the filing. CMP-02 must be filed before the financial year begins. A late filing cannot make the option effective from the start of that year.
  5. 5If the question is about exit, decide the trigger: ceasing to satisfy a condition (CMP-04 within 7 days, section 9(1) from that day), voluntary withdrawal (CMP-04 before the withdrawal date), or denial by the officer (CMP-05 to CMP-07).
  6. 6List the follow-up forms and time limits: ITC-03, ITC-01, CMP-08 and GSTR-4, as relevant.
  7. 7Apply the same-PAN rule: the intimation covers all places of business under that PAN.
  8. 8Write the answer as rule, application, conclusion.

Quickest way: Form and deadline grid

When to use it: Use for MCQs and short-note questions that ask which form, which date or which time limit applies.

  1. Opt in, registered person: CMP-02, before the financial year, ITC-03 within 60 days.
  2. Opt in, new registrant: REG-01 Part B, effective from the date fixed under rule 10.
  3. Leave voluntarily: CMP-04 before withdrawal date.
  4. Lose eligibility: CMP-04 within 7 days, tax under section 9(1) from the day of default.
  5. Officer action: CMP-05 (15 days to show cause), CMP-07 order within 30 days of reply.
  6. Stock after exit: ITC-01 within 30 days.
  7. Remember numbers 7, 15, 30, 60 and the forms they attach to.

Common mistakes in Effective Date and Procedure for Opting Composition

  • Saying the option is effective from the date the CMP-02 is filed.

    Students assume any filing starts the benefit from the filing date.

    Fix: Rule 4(1): for a CMP-02 intimation under rule 3(3), the option is effective from the beginning of the financial year.

  • Mixing up CMP-02 and CMP-04.

    The form numbers look alike and both are 'composition forms'.

    Fix: CMP-02 is for opting in; CMP-04 is for withdrawal or intimation of ceasing to be eligible.

  • Giving 30 days for the CMP-04 intimation when conditions are breached.

    Confusion with the 30-day periods for ITC-01 and the officer's order.

    Fix: Rule 6(2) says seven days from the occurrence of the event.

  • Assuming the tax invoice can be delayed after losing composition status.

    Students focus on forms and forget the invoice change.

    Fix: From the day you cease to satisfy the conditions, you pay tax under section 9(1) and must issue a tax invoice for every taxable supply made thereafter.

  • Treating one branch's intimation as applying only to that branch.

    Students think state-wise registration means separate options.

    Fix: Rules 3(5) and 6(7) deem the intimation or withdrawal to apply to all places of business on the same PAN.

  • Using the old 30 April date for GSTR-4 in every year.

    Older notes state 30 April.

    Fix: The rule text keeps 30 April but the proviso sets 30 June for FY 2024-25 onwards. Quote the proviso.

Worked examples

Example 1

Sharma Traders, a registered trader in Jaipur, wants to opt for the composition levy for the financial year starting 1 April. State the procedure, the effective date and the follow-up compliance.

Show the solution
  1. Sharma Traders is an already registered person, so rule 3(3) applies.
  2. It must file FORM GST CMP-02 electronically on the common portal, signed or verified by EVC, before the commencement of the financial year, that is before 1 April.
  3. Under rule 4(1), the option is effective from the beginning of the financial year, that is 1 April.
  4. It must furnish FORM GST ITC-03 (as per rule 44(4)) within sixty days from the start of the financial year.
  5. The intimation applies to all its places of business registered on the same PAN (rule 3(5)).
  6. During the year it files CMP-08 by the 18th of the month after each quarter and GSTR-4 annually.

Answer: File CMP-02 before 1 April; the option is effective from 1 April; file ITC-03 within 60 days from 1 April; the option covers all places of business on the same PAN.

Example 2

Meera Foods, a composition taxpayer, crosses a condition of section 10 on 12 September and so ceases to be eligible. Explain the consequences and compliance. Later, if the officer believed it was never eligible, outline the officer's procedure.

Show the solution
  1. Under rule 6(2), Meera Foods is liable to pay tax under section 9(1) from 12 September, the day it ceased to satisfy the condition.
  2. From that day it must issue a tax invoice for every taxable supply.
  3. It must file an intimation of withdrawal in FORM GST CMP-04 within seven days of the event, that is by 19 September.
  4. Under rule 6(6), it may furnish FORM GST ITC-01 within thirty days from the date from which the option is withdrawn, showing stock of inputs and inputs in semi-finished or finished goods.
  5. If the officer believes it was not eligible, he may issue a notice in FORM GST CMP-05 to show cause within fifteen days of receipt (rule 6(4)).
  6. Meera replies in FORM GST CMP-06. The officer issues an order in FORM GST CMP-07 within thirty days of receiving the reply, either accepting the reply or denying the option from the date of the option or from the date of the contravention (rule 6(5)).

Answer: Regular tax under section 9(1) applies from 12 September with tax invoices; CMP-04 is due by 19 September; ITC-01 is within 30 days; a denial follows CMP-05, CMP-06 and CMP-07.

Exam tips

  • Learn the form numbers with their purpose in one line each: CMP-02 opt in, CMP-03 stock, CMP-04 withdrawal, CMP-05 notice, CMP-06 reply, CMP-07 order, CMP-08 quarterly statement.
  • In MCQs, watch the time limits: 7 days, 15 days, 30 days, 60 days, 90 days. Examiners swap them as distractors.
  • For a 14-mark question, structure the answer as opting, effective date, validity, withdrawal and consequences, with rule numbers.
  • Always state that the effective date for a CMP-02 filer is the start of the financial year, and mention the same-PAN rule for extra marks.
  • Quote the GSTR-4 due date as 30 June for FY 2024-25 onwards if the question concerns recent years.

Practice questions from Composition Levy

Effective Date and Procedure for Opting Composition: frequently asked questions

What is the effective date of the composition option under Rule 4?

If you file CMP-02 under rule 3(3), the option is effective from the beginning of the financial year. If you opted through REG-01 at registration, it is effective from the date fixed under rule 10(2) or (3), after registration is granted.

Which form do I use to opt for the composition scheme?

A registered person files FORM GST CMP-02 on the common portal before the financial year begins. A new applicant opts in Part B of FORM GST REG-01, which counts as the intimation.

How do I withdraw from the composition scheme?

File FORM GST CMP-04 before the date of withdrawal if you leave by choice. If you stop satisfying a condition, file CMP-04 within seven days and pay tax under section 9(1) from that day, issuing tax invoices.

Do I need to file anything about stock when I leave composition?

Yes. You may furnish FORM GST ITC-01 with details of inputs and inputs in semi-finished or finished goods held on the date of withdrawal or denial. The time limit is thirty days from the withdrawal date or the CMP-07 order date.