How to Switch from Regular to Composition Scheme under GST (and Vice Versa)
Introduction
Choosing the right GST scheme is crucial for compliance and cost-efficiency. Many small businesses in India consider switching between the Regular Scheme and the Composition Scheme based on their turnover, input tax credit needs, and compliance requirements.
In this 2025 updated guide, Makwana Sweta & Associates, a trusted Chartered Accountant firm in Mumbai, explains how to make a GST composition scheme switch seamlessly.
What is the GST Composition Scheme?
The Composition Scheme is a simplified GST scheme available to small taxpayers. It offers:
- Lower tax rates
- Quarterly return filing
- Minimal compliance
However, composition taxpayers cannot claim input tax credit (ITC) or issue tax invoices.
Applicable For:
- Manufacturers and traders (up to Rs. 1.5 crore turnover)
- Service providers (up to Rs. 50 lakh turnover)
1. Switching from Regular to Composition Scheme
When to Opt In:
- Beginning of the Financial Year
- Deadline: File CMP-02 before 31st March on GST portal
Step-by-Step Process:
- Login to GST portal (gst.gov.in)
- Go to ‘Services’ → Registration → Application to opt for Composition Levy
- File Form CMP-02
- Generate Form ITC-03 within 60 days (reverse ITC on inputs, capital goods)
- Maintain separate books for pre- and post-switch period
Note: You must pay taxes on inputs and capital goods held in stock before switching. Declare this in Form ITC-03.
Compliance Requirements:
- File GSTR-4 (annual) instead of GSTR-1 & GSTR-3B
- Issue bill of supply instead of tax invoice
- Cannot collect GST from customers
2. Switching from Composition to Regular Scheme
When to Opt Out:
- Voluntarily at any time
- Compulsorily if turnover exceeds limits
- File Form CMP-04 within 7 days of ineligibility
Step-by-Step Process:
- Login to GST portal
- Navigate to Services → Registration → Application for Withdrawal from Composition Scheme
- File Form CMP-04
- File ITC-01 within 30 days to reclaim ITC on inputs, capital goods
After Switching:
- Start issuing tax invoices
- File GSTR-1 & GSTR-3B monthly or quarterly
- Maintain full-fledged GST records
Budget 2025 Update
- Turnover limit for traders and manufacturers remains Rs. 1.5 crore
- For service providers, composition scheme available up to Rs. 50 lakh
- ITC reversal/enabling timelines now monitored via GSTR-2B for better transparency
Key Points to Remember
| Switch Type | Form Needed | ITC Adjustment Form | Timeline |
|---|---|---|---|
| Regular → Composition | CMP-02 | ITC-03 | Before 31st March |
| Composition → Regular | CMP-04 | ITC-01 | Within 30 days |
Common Mistakes to Avoid
- Missing the ITC reversal deadlines
- Claiming ITC while under composition scheme
- Using old invoice formats post-switch
- Not updating the GST registration details
Expert Tip
Work with a GST consultant or a CA in Mumbai to ensure correct documentation and timely compliance. Errors during the switch can trigger penalties, GST mismatches, or scrutiny notices.
Final Words
Switching between GST schemes is legally permissible but must be done with clarity and compliance. Whether opting for simplified tax or returning to full ITC benefits, strategic planning is vital.
Need expert help? Makwana Sweta & Associates provides end-to-end GST advisory, return filing, and compliance support to businesses across India.
Outbound Link: GST Composition Scheme – Official Portal Inbound Link: Our GST Services