How to Set Up Composition Scheme in Tally Prime (2026)

If you’ve opted for the GST Composition Scheme — paying a fixed, lower percentage of turnover instead of standard GST rates — your invoicing and reporting in Tally Prime work a bit differently from a regular GST dealer. You don’t charge GST separately to customers, you can’t claim input tax credit, and your filing cycle is quarterly payment with an annual return rather than the regular monthly/quarterly return cycle.

This guide covers configuring Tally Prime for the Composition Scheme and recording transactions correctly under it.

What You Need Before You Start

• Tally Prime installed, with your company already created
• Confirmation that you’re eligible for and have opted into the Composition Scheme on the GST portal — see our guide on the GST registration process in India for the general registration context
• Awareness of your applicable composition tax rate, which varies depending on whether you’re a trader, manufacturer, restaurant (not serving alcohol), or service provider under the scheme

Step 1: Set Your Registration Type to Composition

1. Gateway of Tally, then F11 (Features), then F3 (Statutory & Taxation)
2. Confirm GST is enabled
3. Set the Registration Type to Composition instead of Regular
4. Enter your GSTIN as usual
5. Press Ctrl+A to save

This single setting changes how Tally Prime handles GST on your sales going forward — composition dealers don’t show GST separately on invoices the way regular dealers do.

Step 2: Adjust Your Sales Ledger Configuration

1. Open your sales ledger(s)
2. Since composition dealers don’t charge GST separately, you generally won’t set a GST rate on the sales ledger the way a regular dealer would
3. Your invoice will show the total sale value without a separate tax line, since the composition tax is your own cost, not something passed on to and shown to the customer

Step 3: Record Sales as Usual

1. Gateway of Tally, then Vouchers, then F8 (Sales)
2. Select the customer and add items or services as normal
3. Since there’s no GST breakup to show on a composition invoice, the invoice simply reflects the sale value
4. Save with Ctrl+A

Your invoices should also carry the words “composition taxable person, not eligible to collect tax on supplies” or similar wording as required under composition scheme invoicing rules — check the current exact wording requirement, since this is a compliance detail that matters if checked.

Step 4: Record Purchases Normally (No Input Credit)

1. Gateway of Tally, then Vouchers, then F9 (Purchase)
2. Record your purchases as usual, including any GST charged by regular suppliers
3. Since composition dealers cannot claim input tax credit, the GST paid on purchases is simply part of your cost, not a separate recoverable amount — make sure your purchase ledger isn’t set up expecting an input credit calculation the way a regular dealer’s would be

Step 5: Calculate Your Composition Tax Liability

1. Gateway of Tally, then Display More Reports, then GST Reports
2. Look for the composition-specific summary, which shows your total turnover for the period
3. Apply your applicable composition rate to this turnover to determine the amount payable — Tally Prime may show this calculation directly depending on your release, or you may need to compute it based on the turnover figure shown

Step 6: File CMP-08 (Quarterly Statement-cum-Payment)

1. Composition dealers pay tax quarterly using Form CMP-08, even though detailed invoice-level returns aren’t required the way GSTR-1 is for regular dealers
2. Use your turnover figure from Tally Prime’s report to fill in CMP-08 on the GST portal
3. Make the payment for the quarter

Step 7: File the Annual Return (GSTR-4)

1. Composition dealers file an annual return (commonly GSTR-4) summarizing the year’s turnover and tax paid
2. Reconcile your annual figures in Tally Prime against what you’ve reported quarterly via CMP-08 before filing
3. File on the GST portal by the applicable due date

Switching Between Composition and Regular Scheme

If your turnover grows beyond the composition threshold, or you choose to opt out for other reasons (for example, because your buyers need input tax credit you can’t offer them), you’ll need to formally switch to the regular scheme on the GST portal and then update your Registration Type in Tally Prime to Regular, adjusting your ledgers and invoicing setup accordingly from that point forward.

Common Mistakes to Avoid

• Showing GST separately on invoices as if you were a regular dealer, which composition dealers aren’t permitted to do
• Trying to claim input tax credit on purchases, which isn’t available under the composition scheme
• Missing the required invoice wording identifying yourself as a composition taxpayer
• Not tracking turnover carefully enough to know when you’re approaching the composition scheme’s eligibility threshold
• Continuing to operate under composition settings in Tally Prime after switching to the regular scheme on the GST portal, creating a mismatch between your actual registration and your software configuration

FAQs

Can a composition dealer make inter-state sales? Generally, the composition scheme has restrictions on inter-state outward supplies. Check current rules carefully if a meaningful part of your sales cross state lines, since this can affect your eligibility for the scheme.

Does Tally Prime calculate the composition tax rate automatically? Tally Prime can help track turnover for reporting, but you should confirm the exact applicable rate for your business category (trader, manufacturer, restaurant, or service provider under the scheme), since rates differ and are set by current GST rules.

Can I switch from composition to regular scheme mid-year? Yes, this is possible through the GST portal if you cross the threshold or choose to switch, and your Tally Prime configuration should be updated to match as soon as the change takes effect.

Why can’t I claim input tax credit on my purchases under composition scheme? It’s a structural feature of the scheme — in exchange for a simpler, lower fixed tax rate and reduced compliance, composition dealers give up the right to claim credit on GST paid on their purchases.

What return do composition dealers file instead of GSTR-1 and GSTR-3B? Composition dealers generally file a quarterly statement-cum-payment (CMP-08) and an annual return (commonly GSTR-4), rather than the monthly/quarterly GSTR-1 and GSTR-3B cycle used by regular dealers.