Composition Dealer GST Rates by Business Type: Manufacturer, Trader, Restaurant
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.