Rule 6: Lapse, Withdrawal and the CMP-04 to CMP-07 Chain

Rule 6 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

There are three ways to leave the composition scheme and Rule 6 governs all of them. They differ in who initiates, which form is filed, and — crucially — the date from which regular tax becomes payable, which is sometimes months before anyone files anything.

Rule 6(1) keeps the option valid only while every condition in s.10 and Chapter II is satisfied. Rule 6(2) — failure of a condition — makes s.9(1) tax payable from the day of failure, requires a tax invoice thereafter, and CMP-04 within seven days. Rule 6(3) — voluntary exit — requires CMP-04 before the date of withdrawal. Rule 6(4) to (6) — officer-led denial — runs CMP-05 notice, CMP-06 reply, CMP-07 order, with ITC-01 available within thirty days. Rule 6(7) makes any of these effective across the whole PAN.

Route one: the condition fails and you fall out

Rule 6(1): "The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and under these rules."

Rule 6(2): "The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of this Chapter and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event."

Three obligations, in a specific order.

Tax under s.9(1) from the day. Not from the quarter, month or year end. If the condition failed on 14 August, ordinary tax is payable on supplies from 14 August.

A tax invoice for every taxable supply thereafter. From that same day the dealer stops issuing a bill of supply and starts issuing tax invoices under s.31 and Rule 46.

CMP-04 within seven days of the event. The seven days run from the event, not from when it was noticed. A dealer who realises in November that they crossed the limit in August has already been in default for months on both the tax and the invoices.

Section 10(3) covers the commonest such event — the option lapses from the day aggregate turnover during the year exceeds the limit. Aggregate turnover vs turnover in State →

Route two: you choose to leave

Rule 6(3): "The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed or verified through electronic verification code, electronically on the common portal."

Same form, opposite clock. Under sub-rule (2) CMP-04 is filed within seven days after the event. Under sub-rule (3) it is filed before the date of withdrawal.

And a voluntary exit is at will. There is no minimum period, no start-of-year restriction and no approval requirement — a dealer who wants input tax credit for a large purchase can leave mid-year on their own motion. Getting back in is the hard part: Rule 3(3) permits entry only prior to the commencement of a financial year. Rule 3 and Rule 4 →

Route three: the officer denies the option

Rule 6(4) — CMP-05 notice. Where the proper officer has reasons to believe the person was not eligible to pay tax under s.10 or has contravened the Act or Chapter II, he may issue a notice in FORM GST CMP-05 to show cause within fifteen days of receipt why the option should not be denied.

Rule 6(5) — CMP-06 reply and CMP-07 order. On receipt of the reply 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 event concerning the contravention.

Note the two possible effective dates in CMP-07, and how far apart they are. Denial from the date of the option unwinds the whole period — every bill of supply becomes a document that should have been a tax invoice, and the difference between composition tax paid and ordinary tax due becomes recoverable. Denial from the date of the event limits the damage to the period after the contravention.

Section 10(5) supplies the penal consequence. Where the officer has reasons to believe a person paid under s.10 or s.10(2A) despite not being eligible, that person is liable to a penalty, and s.73, s.74 or s.74A applies mutatis mutandis for determination of tax and penalty. Section 74A was added by the Finance (No. 2) Act, 2024 and governs determinations for tax periods from FY 2024-25 onwards.

Rule 6(6): the ITC-01 recovery

"Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish… a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07."

All three exit routes get the same recovery. This is the mirror of ITC-03 on the way in — credit was reversed on entry, and credit on stock in hand is claimed back on exit, under s.18(1)(c).

Read Rule 6(6) with section 18(1)(c) and Rule 40, because Rule 6(6) understates the entitlement. Rule 6(6) describes the ITC-01 statement as covering inputs and inputs contained in semi-finished or finished goods. But s.18(1)(c) entitles a person ceasing to pay under s.10 to credit on those and on capital goods, with a proviso reducing the capital goods credit, and Rule 40(1)(a) fixes that reduction at five percentage points per quarter or part from the date of the invoice. Rule 40(1)(c)(iii) then requires the ITC-01 declaration to specify capital goods as well.

Three further limits decide how much comes back. The stock is taken on the day immediately preceding the date the person becomes liable under s.9. Section 18(2) bars credit on any invoice older than one year from its date. And Rule 40(1)(d) requires certification by a practising chartered accountant or cost accountant where the aggregate claim across CGST, SGST, UTGST and IGST exceeds two lakh rupees.

And the word in Rule 6(6) is "may". ITC-01 is a right, not a duty — but an unexercised right within thirty days is a lost one. ITC-03 in, ITC-01 out →

Rule 6(7): everything is PAN-wide

"Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule (5) in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number."

The exit mirrors the entry. Rule 3(5) deems one intimation in to cover the PAN; Rule 6(7) deems one exit out to do the same.

Including a denial. A CMP-07 order against a single registration ends the scheme for every registration on that PAN — so an adverse order in one State is a national event.

Key takeaways

• Rule 6(2) makes tax payable from the day the condition fails, with a tax invoice from that day and CMP-04 within seven days.
• Rule 6(3) voluntary withdrawal uses the same CMP-04, filed before the withdrawal date.
• CMP-05 → CMP-06 → CMP-07 is the denial chain: fifteen days to reply, thirty days for the order.
• CMP-07 may deny the option from the date of the option — retrospective to the beginning.
• ITC-01 within thirty days recovers credit on inputs and on capital goods under s.18(1)(c), the latter reduced by 5% per quarter under Rule 40(1)(a), subject to the s.18(2) one-year bar.
• Rule 6(7) makes any exit or denial effective across every registration on the PAN.

Read next

• Rule 3 and Rule 4: Which CMP Form, and When the Option Starts
• Entering and Exiting: ITC-03 In, ITC-01 Out
• Rule 5: Seven Conditions and Restrictions
• Rule 62: CMP-08 by the 18th, GSTR-4 by 30 June

Disclaimer: Positions stated as on 5 September 2026, based on Rule 6 of the CGST Rules, 2017 and sections 10, 18 and 74A of the CGST Act, 2017 as recorded in the ICAI Bare Law (12th edition, amended to 31 March 2026), and the ICAI Handbook on Composition Scheme under GST (February 2026, 3rd edition).