Switching from GST Composition to Regular Scheme Using Form CMP-04

How do I switch from GST composition to regular scheme? File Form GST CMP-04 on the GST portal within 7 days of crossing the turnover limit or deciding to switch voluntarily. From that date, start issuing tax invoices, file GSTR-1 and GSTR-3B, and submit Form ITC-01 within 30 days to claim input tax credit on stock and capital goods held at the date of transition.

The composition scheme keeps GST simple for small businesses: flat-rate tax on turnover, quarterly returns, no ITC complexity. But every growing business eventually outgrows it, either because turnover crosses the threshold, because a buyer needs a tax invoice, or because the ITC you are losing on purchases exceeds the compliance cost of regular filing.

When that point arrives, the transition must be handled correctly. Filing CMP-04 late, missing the ITC-01 deadline, or continuing to issue bills of supply after the switch date creates notices, penalties, and ITC reversals that can take months to resolve.

This guide covers every step of the composition-to-regular migration: the triggers, the forms, the ITC recovery process, the first return filing, and the operational changes your business needs to make.

Looking for expert help with GST composition to regular scheme migration CMP-04 India 2026? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

When Exit from Composition Becomes Mandatory

The composition option lapses automatically, with no grace period, the moment any of the following occurs during a financial year:

1. Turnover Breach

"Aggregate turnover" includes the value of all taxable supplies, exempt supplies, exports, and interstate supplies of a person having the same PAN, computed on an all-India basis. It excludes the value of inward supplies on which tax is paid under reverse charge and the value of CGST, SGST/UTGST, IGST, and cess.

The exit is effective from the date the threshold is crossed. Not from the end of the quarter, not from the next FY: from the exact date.

2. Ineligible Supplies

You are automatically disqualified from composition if you:

• Make interstate outward supplies (selling goods or services to a buyer in another state)
• Supply goods through an e-commerce operator (Section 9(5))
• Supply ice cream, pan masala, tobacco, or aerated water (products specified in the negative list under Section 10(2))
• Are a casual taxable person or a non-resident taxable person
• Supply goods or services that are not leviable to tax under the CGST/SGST Act

3. Non-Compliance Triggers

The proper officer may also cancel the composition option if:

• You fail to file CMP-08 (quarterly statement) for consecutive quarters
• Information filed is found to be fraudulent or materially incorrect
• You contravene the conditions of Section 10

Looking for expert help with GST composition scheme exit mandatory turnover limit Rs 1.5 crore India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

Voluntary Exit: Why Businesses Choose to Switch

Not every exit is forced. Many businesses voluntarily leave composition because:

1. ITC recovery: if you purchase goods or services with 18% or 28% GST, losing that credit under composition is expensive. A business with Rs 80 lakh in GST-bearing purchases at 18% loses Rs 14.4 lakh in ITC per year. If the composition tax at 1% on Rs 1.2 crore turnover is Rs 1.2 lakh, the net cost of staying in composition is Rs 13.2 lakh.

2. Interstate expansion: composition bars interstate sales. A manufacturer wanting to sell to buyers in other states must switch to regular.

3. B2B customer demands: GST-registered buyers cannot claim ITC on purchases from composition dealers (the bill of supply does not show tax). Large buyers often refuse to deal with composition suppliers for this reason.

4. Government tenders: many government procurement processes require regular GST registration for vendor eligibility.

Filing Form GST CMP-04: Step-by-Step

Form CMP-04 is the intimation to the department that you are withdrawing from the composition scheme.

Step 1: Log in to the GST Portal

Go to the GST portal and log in with your GSTIN and password.

Step 2: Navigate to the Withdrawal Application

Go to Services > Registration > Application for Withdrawal from Composition Levy.

Step 3: Select the Reason for Withdrawal

The form presents the following options:

• Voluntary withdrawal: you are choosing to exit
• Crossed the turnover threshold: aggregate turnover exceeded Rs 1.5 crore (or Rs 75 lakh for special category states)
• Ceased to satisfy conditions: you have started making ineligible supplies

Select the applicable reason and enter the date of withdrawal (the date on which the disqualifying event occurred, or the date you choose to exit if voluntary).

Step 4: Enter Place of Business Details

Confirm or update your principal place of business and additional places of business.

Step 5: Verify and Submit

Verify the application using DSC (Digital Signature Certificate) or EVC (Electronic Verification Code via Aadhaar OTP).

Step 6: Receive the Acknowledgment

On successful submission, you receive an acknowledgment in Form GST REG-18, confirming the withdrawal. The effective date of withdrawal is the date you specified in CMP-04.

Filing Deadline

CMP-04 must be filed within 7 days from the date of the event that triggers exit. Filing late does not delay the exit: you are already operating as a regular taxpayer from the trigger date, and delayed CMP-04 filing may attract scrutiny.

Deadline Timeline

Composition to Regular: Post-Exit Compliance Timeline

Key dates after filing Form CMP-04 (assuming exit date of August 5, 2026)

1. Aug 5

   Exit date: stop issuing bills of supply

   Start issuing tax invoices with CGST/SGST or IGST breakup from this date

2. Aug 12

   File Form CMP-04

   Within 7 days of exit date; portal path: Services > Registration > Withdrawal from Composition

3. Sep 4

   File Form GST ITC-01

   Within 30 days of exit; declare stock, semi-finished goods, finished goods, and capital goods for ITC claim

4. Sep 11

   File GSTR-1 for August 2026

   First regular outward supply return; report all B2B and B2C invoices issued from Aug 5 onwards

5. Sep 20

   File GSTR-3B for August 2026

   First regular summary return with tax payment; claim ITC from ITC-01 in Table 4

6. Oct 18

   File CMP-08 for Apr-Jun 2026

   Last composition quarterly statement covering the period before exit (if Q1 was under composition)

7. Apr 30, 2027

   File GSTR-4 for FY 2026-27

   Annual composition return covering the period you were under composition during FY 2026-27

Source: CGST Act, 2017, Sections 10, 18; CGST Rules, 2017, Rules 3, 40

Claiming ITC on Stock: Form GST ITC-01

This is the single most valuable step in the transition. Under Section 18(1)(c) of the CGST Act, a person switching from composition to regular is entitled to claim ITC on:

1. Inputs held in stock on the date of exit
2. Inputs contained in semi-finished goods held in stock
3. Inputs contained in finished goods held in stock
4. Capital goods (subject to proportional reduction)

How Capital Goods ITC Works

For capital goods, the credit is reduced by 5 percentage points for every quarter (or part thereof) from the date of invoice to the date of exit. If you purchased a machine 2 years ago (8 quarters), the reduction is 40%, and you can claim 60% of the original GST paid.

ITC-01 Filing Steps

1. Log in to the GST portal
2. Go to Services > Returns > ITC Forms > GST ITC-01
3. Add details of all inputs, semi-finished goods, finished goods, and capital goods
4. For each item, enter: HSN code, description, unit, quantity, value, tax rate, and tax amount to be claimed
5. Attach supporting invoices (GST invoices from suppliers showing the tax paid)
6. Submit within 30 days of the date of exit

Critical Requirements for ITC-01

• You must hold valid GST invoices for all items on which you claim ITC. If you purchased goods without a tax invoice (common in composition, since suppliers know you cannot claim ITC), you have no basis for an ITC claim on those goods.
• The invoices must be within the ITC time limit: Section 16(4) allows ITC claims only up to the due date of the September return following the end of the financial year to which the invoice pertains, or the date of filing the annual return, whichever is earlier.
• A physical stock count on the date of exit is essential. The ITC-01 declaration must match your actual inventory.

Looking for expert help with GST ITC-01 claim input tax credit stock composition to regular exit India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

First Returns Under Regular Scheme

After exit, you enter the regular GST return cycle:

GSTR-1 (Outward Supplies)

• Due date: 11th of the following month
• Content: all B2B invoices (with buyer GSTIN), B2C invoices (consolidated), credit notes, debit notes, export invoices
• Report only supplies made from the date of exit onwards. Supplies made before the exit date are reported in CMP-08 and GSTR-4.

GSTR-3B (Summary Return and Tax Payment)

• Due date: 20th of the following month
• Content: summary of outward and inward supplies, ITC claimed, tax payable, tax paid
• Claim the ITC from Form ITC-01 in Table 4(A)(5) of GSTR-3B ("ITC available: as per transition provisions")

Pending Composition Returns

Even after switching, you must file:

• CMP-08 for the quarter in which you were under composition (covering the portion of the quarter before exit)
• GSTR-4 (annual composition return) for the financial year, covering the period you were under composition

Operational Changes After Exit

The switch from composition to regular is not only a filing change. Your business operations must adapt:

Invoicing

Start a new invoice series from the date of exit to maintain a clean audit trail.

Pricing

Under composition, you absorbed GST as a cost (no credit, no collection from buyer). Under regular, you charge GST to the buyer and claim ITC on purchases. This changes your pricing structure:

• If you were selling a product for Rs 1,000 (inclusive of 1% composition tax = Rs 10), your effective price was Rs 990
• Under regular at 18% GST, you charge Rs 990 + Rs 178.20 GST = Rs 1,168.20, but the buyer gets Rs 178.20 as ITC
• For B2B sales, the buyer's net cost is unchanged. For B2C sales, the sticker price increases, which may need customer communication

Accounting

• Set up GST output liability and input credit ledgers if not already in place
• Configure your accounting software (Tally, Zoho Books, etc.) for GST-compliant invoicing
• Track ITC monthly: GSTR-2B reconciliation becomes mandatory

Cash Flow

The biggest operational impact. Under composition, tax was a small fixed percentage paid quarterly. Under regular:

• Monthly tax liability: GST collected on every invoice must be deposited monthly
• ITC timing gap: credit is available only after the supplier files their GSTR-1 and it reflects in your GSTR-2B
• Working capital impact: you collect GST from buyers but must pay it to the government by the 20th, creating a 20-50 day cash cycle

Re-Entry into Composition

Re-entry into the composition scheme is barred for the remainder of the financial year in which you exit. You can opt back in from the next financial year by:

1. Filing Form GST CMP-02 before March 31 of the current financial year
2. Ensuring your aggregate turnover in the preceding financial year was within the threshold
3. Filing Form GST ITC-03 within 60 days of the effective date of composition, reversing ITC on stock held on that date

Note: ITC-03 is the reverse of ITC-01. When entering composition, you must return the ITC on all inputs and capital goods held in stock, because composition taxpayers cannot hold ITC.

Looking for expert help with re-enter GST composition scheme next financial year CMP-02 ITC-03? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

Common Mistakes During Transition

1. Continuing to issue bills of supply after exit: from the exit date, every supply must be covered by a tax invoice. Bills of supply issued after exit are invalid, and the GST on those supplies is still payable.

2. Missing the ITC-01 deadline: the 30-day window is strict. ITC-01 filed after 30 days may be rejected, and you lose the credit on stock permanently.

3. Not doing a physical stock count: estimated stock values in ITC-01 attract scrutiny. Maintain a dated stock register with valuation.

4. Forgetting to file CMP-08 for the last composition quarter: even after switching, the composition returns for the pre-exit period are still due. Missing them triggers late fees.

5. Not informing buyers: B2B buyers need to know you are now a regular taxpayer issuing tax invoices. Their accounts payable teams must update your vendor record to claim ITC on your invoices.

6. Claiming ITC on invoices without GST: goods purchased from unregistered suppliers or under exemption do not carry ITC. Only invoices where GST was charged and paid by the supplier qualify.

Frequently Asked Questions

---

Source: CGST Act, 2017, Sections 10, 18(1)(c), 18(4); CGST Rules, 2017, Rules 3, 3A, 40, 44; Form GST CMP-04, Form GST ITC-01, Form GST ITC-03.