Composition Dealer GST Rates by Business Type: Manufacturer, Trader, Restaurant
Reviewed by CA Nikhil Gupta · Last reviewed 16 July 2026
The Composition Scheme does not charge one flat rate for everyone — the rate depends on whether the business is a manufacturer, a trader, a restaurant, or a service provider, and applying the wrong rate is a common, costly error at return-filing time.
The rates by category
| Category | Total rate | Split | Applies on |
|---|---|---|---|
| Manufacturers (other than notified excluded goods) | 1% | 0.5% CGST + 0.5% SGST | Turnover in the state |
| Traders (resellers of goods) | 1% | 0.5% CGST + 0.5% SGST | Turnover of taxable supplies in the state |
| Restaurant service (not serving alcohol) | 5% | 2.5% CGST + 2.5% SGST | Turnover in the state |
| Other eligible service providers (Section 10(2A)) | 6% | 3% CGST + 3% SGST | Turnover in the state |
A subtlety that trips up traders
For a trader, the 1% composition rate applies specifically on the turnover of taxable supplies — not on the entire turnover including any exempt-goods sales, which are treated differently. For a manufacturer, by contrast, the rate applies on total turnover in the state, without that same exempt-turnover carve-out. This distinction rarely matters for a business that deals purely in taxable goods, but becomes material for traders who also stock GST-exempt items alongside taxable ones.
Why restaurants get a materially higher rate
Restaurant service is treated as its own category within the goods-composition framework (not folded into the general services composition scheme, and not eligible for the general 1% goods rate) because it was carved out with its own defined rate structure. The 5% rate is a recognition that restaurant supply is service-like in substance (dine-in preparation and service) even though it is legally structured within the goods-composition provision — but it explicitly excludes restaurants that serve alcohol, which cannot use composition for that part of the business at all given liquor's separate tax treatment outside GST.
Worked comparison
A trader with ₹80 lakh annual taxable turnover under composition pays roughly ₹80,000 in GST (1% of turnover) with no ITC claim available on purchases. The same business under regular registration might pay a higher headline GST rate on sales, but could offset a meaningful portion through ITC on purchases — whether composition is actually cheaper depends entirely on the gross margin and the GST rate structure of the specific goods traded, which is why this decision benefits from a real numbers comparison rather than a rule-of-thumb assumption.
Quarterly payment, annual return
Composition dealers pay tax quarterly via a simplified self-assessed payment in Form GST CMP-08 (not a full return, just a payment declaration), and file a single annual return in Form GSTR-4 consolidating the year's turnover and tax paid.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- GST & Indirect Tax
- Official starting point
- www.gstcouncil.gov.in
Page source links
The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.
Primary sources & related provisions
Statutory provisions referenced in this guide: