A registered person opting for the composition scheme under Section 10 of the GST Act can pay a lower, fixed rate of tax and enjoy simpler compliance, provided all conditions are met. Rule 6 of the CGST Rules details the procedure, consequences, and notifications involved when a taxpayer enters, exits, or is removed from the scheme.

However, the benefit of this scheme is not permanent. The option remains valid only if the taxpayer continuously follows the conditions. If conditions are broken, or the taxpayer chooses to withdraw, Rule 6 explains the process, consequences, and compliance requirements.

When is Composition Levy Valid?

👉 The option to pay tax under the composition scheme remains valid only as long as the taxpayer satisfies all conditions of Section 10 and GST Rules.

✅Main Conditions:

• Annual turnover within limit (₹1.5 Cr for most States; ₹75 Lakh for special category States).
• No inter-State outward supply.
• No supply of non-taxable items (e.g., alcohol).
• No supply through e-commerce operators (like Amazon/Flipkart).
• Cannot be a casual taxable person or non-resident.

💡Example:
Ravi, a small kirana shop owner in Lucknow, opts for composition levy. He can continue under this scheme till his turnover is ≤ ₹1.5 crore and he does not make inter-State sales.

Ceasing to Satisfy Conditions

Content:
If the taxpayer stops meeting any required condition (e.g., exceeding turnover, dealing in prohibited supplies):

• Needs to pay normal GST (Section 9) from that date.
• Must issue tax invoices for all supplies from then onwards (not bill of supply).
• Must inform the authorities by filing FORM GST CMP-04 within 7 days of the event.

Example:
Meena runs a sweet shop under composition. On 15th December 2025, her turnover crosses ₹1.5 crore.

• From 15th Dec, she must start issuing tax invoices.
• She must file CMP-04 by 22nd Dec 2025.

Voluntary Withdrawal

👉 A taxpayer can choose to exit from composition even without breaking any condition.

• Must file CMP-04 electronically before the withdrawal date.

💡Example:
Akhil, a trader under composition, wants to claim ITC on his purchases. He files CMP-04 on 31st March 2026 to exit from 1st April 2026 and become a regular taxpayer.

Action by GST Officer

👉 If the officer believes the taxpayer is ineligible or has violated provisions, he can:

• Issue a Show Cause Notice in CMP-05.
• The taxpayer must reply within 15 days.

💡Example:
GST officer finds that Priya, a composition taxpayer, is making inter-State supplies. He issues CMP-05 on 1st August 2025. Priya must reply by 16th August 2025.

Final Order by Officer

👉 After receiving the reply (CMP-06), the officer will pass an order in CMP-07 within 30 days:

• Accepting the reply → taxpayer continues in composition.
• Rejecting the reply → composition option is withdrawn from:
  • The start of the FY, OR
  • The date of violation, whichever is applicable.

💡Example:
If Priya’s reply is rejected, the officer may withdraw her composition option from 1st April 2025 (start of FY).

Claiming ITC After Exit

👉 When a taxpayer exits (voluntarily or by denial), he can claim ITC (Input Tax Credit) on stock lying with him.

• Must file Form ITC-01 within 30 days of withdrawal.
• Stock includes:
  • Inputs,
  • Semi-finished goods, and
  • Finished goods.

💡Example:
Suresh exits composition on 1st October 2025. He has:

• Inputs worth ₹1,00,000 (GST ₹18,000).
• Finished goods worth ₹50,000 (GST ₹9,000).
  👉 He can file ITC-01 by 31st October 2025 to claim ₹27,000 ITC.

PAN-wise Applicability

👉 Exit or denial of composition in one State applies to all registrations under the same PAN.

💡Example:
XYZ Pvt. Ltd. has GST registrations in Delhi and Haryana. If the Haryana unit violates composition rules, both units under the same PAN must exit the scheme.

Conclusion

The Composition Scheme under GST offers a simplified compliance route for small taxpayers, but its validity depends on strict and continuous adherence to the conditions. Once a taxpayer crosses the threshold, violates conditions, or opts out voluntarily, they must immediately switch to the regular GST system, issue tax invoices, and comply with return filing requirements. The law also empowers GST officers to withdraw the scheme retrospectively in cases of contravention, making compliance even more crucial.

At the same time, the provisions safeguard taxpayers by allowing them to claim ITC on stock when exiting the scheme. Importantly, since the scheme is PAN-based, one violation in a single State affects all registrations under the same PAN.