Intimation of Withdrawal from the Composition Scheme

The Composition Scheme, introduced under Section 10(2) of the Central Goods and Services Tax (CGST) Act, 2017, offers a simplified tax payment mechanism for eligible smallscale taxpayers. However, the scheme is not mandatory, and a registered taxpayer may decide to exit it at any time. The process of informing the tax authorities about this decision is called the Intimation of Withdrawal. This page explains the legal basis, procedural steps, timelines, and consequences of withdrawing from the composition scheme.

1. Legal Basis for Withdrawal

Section 15 of the CGST Act and Rule 88 of the CGST Rules govern the withdrawal from the composition scheme. The legislation mandates that a taxpayer who wishes to opt out must give a written intimation to the jurisdictional principal commissioner (or the designated authority).

2. When Can a Taxpayer Withdraw?

• Voluntary Withdrawal: At any time, if the taxpayer believes that paying tax under the normal (regular) provisions is more advantageous.
• Compulsory Withdrawal: The government may direct a taxpayer to exit the scheme if any of the following occurs:
  • The turnover exceeds the prescribed limit (currently 1.5 crore for most states, 75 lakh for special category states).
  • The taxpayer makes interstate supplies (except to a composition taxpayer).
  • The taxpayer supplies exempted goods or services that are not eligible under the composition scheme.
  • The taxpayer engages in any activity that is prohibited for composition taxpayers (e.g., supplying certain goods like tobacco, liquor, etc.).

3. Procedure for Intimation

1. Draft the Intimation Letter
   • Addressed to the Principal Commissioner of CGST (or the jurisdictional GST officer).
   • State the GSTIN, legal name, trade name (if any) and the financial year for which withdrawal is sought.
   • Specify the reason for withdrawal voluntary or due to a statutory trigger.
   • Include a declaration that the information provided is true and correct.
2. Attach Required Documents
   • Copy of the GST registration certificate.
   • Financial statements or turnover proof if withdrawal is due to exceeding turnover limit.
   • Any other documents requested by the tax officer (e.g., invoices, exemption certificates).
3. Submit the Intimation
   • Via the GST portal: log in, go to Services > Registration > Application for Withdrawal from Composition Scheme, and upload the letter and attachments.
   • Alternatively, send a hard copy by post or hand delivery to the jurisdictional GST office.
4. Acknowledgement
   • On successful portal submission, an acknowledgement number is generated.
   • Keep this number for future reference and any subsequent queries.

4. Timelines

The withdrawal takes effect from the start of the month in which the intimation is received by the authorities. The GST portal reflects the change typically within 710 working days after acceptance. During the interim period, the taxpayer should continue to pay composition tax until the status is officially updated.

5. Tax Implications After Withdrawal

6. Common Mistakes to Avoid

• Failing to submit the intimation before the turnover exceeds the limit leads to automatic disqualification and penalty.
• Continuing to file composition returns after the withdrawal has been accepted.
• Neglecting to update the invoice series, causing mismatches during audit.
• Not claiming ITC for purchases made after withdrawal, resulting in revenue loss.

7. Frequently Asked Questions (FAQ)

Q1. Can I reenter the composition scheme after withdrawal?

Yes. A taxpayer may apply for reentry in any subsequent financial year, provided they meet the eligibility criteria for that year. The new application must be filed through the GST portal before 31st March of the relevant financial year.

Q2. What if I withdraw midyear?

Withdrawal is effective from the first day of the month in which the intimation is received. Any supplies made before that date are still subject to composition tax; supplies thereafter are taxed at normal rates.

Q3. Will I lose the ITC accumulated while I was a composition taxpayer?

No. While in the composition scheme, ITC cannot be claimed, but the credit is not lost. Once you withdraw, you can start availing ITC on purchases made after the effective withdrawal date.

Q4. Do I need to file any special return after withdrawal?

No special return is required. You continue filing the regular GSTR1 (outward supplies) and GSTR3B (summary) as per normal compliance. Ensure that the invoice format reflects the discontinued composition status.

8. Checklist for a Smooth Withdrawal

1. Verify eligibility and reason for withdrawal.
2. Prepare the intimation letter with all required details.
3. Collect supporting documents (turnover proof, registration copy, etc.).
4. Submit via GST portal and retain the acknowledgement number.
5. Update accounting software to reflect noncomposition status.
6. Switch to standard invoice template from the effective date.
7. Begin claiming ITC on eligible purchases.
8. Monitor portal for status update and confirm the change.

9. Additional Resources

• Central Board of Indirect Taxes & Customs Official Site
• GST Portal Forms & Guidelines
• Income Tax Department Guidance on GST
• Professional GST advisory services (tax consultants, CA firms) for complex cases.

With proper planning and timely intimation, withdrawing from the Composition Scheme can be a straightforward process that aligns your tax position with your businesss growth and operational needs.