How to Set Up and Manage Composition Scheme in TallyPrime

Composition scheme in TallyPrime is a simplified GST filing option for small businesses. You pay fixed quarterly GST rates (1-6% depending on business type) instead of monthly GSTR-3B, file GSTR-4 quarterly, and cannot claim input tax credit. Enable it via F11 > Company Features > GST Details.

What Is Composition Scheme and Who Can Use It

Composition scheme is a voluntary GST registration option designed by the Government of India for small and medium businesses. Instead of filing monthly GSTR-3B returns and managing complex input tax credit (ITC) calculations, you pay a fixed percentage of turnover as GST every quarter and file a single GSTR-4 return.

You are eligible for composition scheme if your aggregate turnover in the preceding financial year does not exceed Rs 1.5 crore (Rs 2 crore for services from 1 April 2023). Once you opt in, you must stay in the scheme for at least 2 consecutive financial years. You can exit after that, but cannot re-enter for 5 years.

The main advantage is simplicity: fewer compliance headaches, quarterly instead of monthly filing, and lower administrative burden. The trade-off is that you cannot claim any input tax credit on purchases, even if you have GST invoices. This makes composition scheme ideal for retailers, small traders, and service providers with low input costs.

Composition Scheme Tax Rates in TallyPrime

TallyPrime supports composition scheme with the following standard tax rates, which apply on your total turnover (not item-by-item):

Business Type	Composition Rate	Input Tax Credit	Filing Frequency
Goods (manufacturing/trading)	1% or 2%	Not allowed	Quarterly (GSTR-4)
Services	6%	Not allowed	Quarterly (GSTR-4)
Mixed (goods + services)	As per item classification	Not allowed	Quarterly (GSTR-4)
Restaurants (5% or 9%)	5% (non-AC) or 9% (AC)	Not allowed	Quarterly (GSTR-4)

These rates are indicative for 2026 and may change based on GST Council decisions. Always verify the current rates on the official GST portal or consult your CA before enabling composition scheme in TallyPrime.

How to Enable Composition Scheme in TallyPrime

Enabling composition scheme in TallyPrime is straightforward. Follow these exact menu paths:

1. Open TallyPrime and select your company.
2. Press F11 (Company Features) or go to Gateway of Tally > F11 > Statutory and Taxation > GST Details.
3. Set Enable GST to Yes (if not already enabled; see how to enable GST in TallyPrime).
4. Locate the field Composition Scheme and change it from No to Yes.
5. A new field Composition Scheme Type will appear. Select one of: Goods, Services, or Mixed.
6. Enter the applicable Composition Rate (%) for your business (e.g., 2% for goods, 6% for services).
7. Ensure Allow ITC is set to No (TallyPrime disables this automatically under composition).
8. Save (Ctrl+S) and close F11.
9. Restart TallyPrime for changes to take effect.

Once enabled, all sales invoices will automatically calculate GST at the composition rate. TallyPrime will also suppress ITC claims on purchase invoices.

Worked Example: Composition Scheme Tax Calculation

Let us work through a real example. Assume you are a small goods trader in Purnea, Bihar, with annual turnover of Rs 80 lakhs. You opt for composition scheme at 2%.

Quarterly turnover: Rs 20 lakhs (Rs 80 lakhs / 4 quarters).

Composition GST due per quarter: Rs 20 lakhs × 2% = Rs 40,000.

Annual composition GST: Rs 40,000 × 4 = Rs 1,60,000.

You file GSTR-4 once per quarter (due by 18th of next quarter month) reporting this fixed amount. You do not file GSTR-1 or GSTR-3B. Even if you purchased goods with GST invoices totalling Rs 10 lakhs with 5% GST (Rs 50,000 ITC), you cannot claim any of this credit under composition scheme.

In TallyPrime, when you create a sales invoice for Rs 10,000, the system automatically adds 2% GST (Rs 200) to the invoice total. On the purchase side, GST is recorded but marked as non-creditable.

Composition Scheme and GSTR Filing in TallyPrime

One of the biggest compliance differences under composition scheme is the return filing structure. Instead of filing monthly GSTR-3B and monthly GSTR-1, you file a single quarterly return called GSTR-4.

GSTR-4 filing rules:

• File once per quarter (April-June, July-September, October-December, January-March).
• Due date: 18th of the month following the quarter end.
• Report total turnover and composition GST paid for the quarter.
• No breakdown of B2B, B2C, or export sales required (unlike GSTR-1).
• No input tax credit schedule (unlike GSTR-3B).

In TallyPrime, you can generate GSTR-4 data by going to Gateway of Tally > Display More Reports > GST Reports > GSTR-4 (if composition is enabled). However, filing itself must be done on the official GST portal (gst.gov.in) using the JSON file exported from TallyPrime, or via a CA or GST practitioner.

Setting Up GST Ledgers for Composition Scheme

Under composition scheme, you still need GST ledgers in TallyPrime, but they work differently. You need:

• Composition GST Payable: A liability ledger to track quarterly GST due.
• Composition GST Paid: A ledger to record quarterly GST payments to the government.

When you create a sales invoice, TallyPrime automatically credits the Composition GST Payable ledger. When you pay the quarterly GST amount to the government, you debit Composition GST Paid and credit your bank account.

You do not need separate ITC ledgers (Input Tax Credit Receivable, Input Tax Credit Payable) because composition scheme does not allow ITC. If TallyPrime auto-creates these ledgers, you can leave them unused or delete them to keep your chart of accounts clean.

Switching from Regular GST to Composition Scheme

If you are already registered under regular GST and want to switch to composition scheme, the process in TallyPrime requires care:

1. Ensure your turnover meets the eligibility threshold (Rs 1.5 crore for goods, Rs 2 crore for services).
2. File a GST amendment (Form GST REG-15) on gst.gov.in to opt for composition scheme. This is not done in TallyPrime; it is a government filing.
3. Once approved, close your current financial year in TallyPrime (Gateway of Tally > F3 > Close Financial Year).
4. In the new financial year, enable composition scheme in F11 as described above.
5. Do not switch mid-year in TallyPrime; always align with the financial year boundary (1 April).

Consult your CA before making this switch, as it affects your tax liability and compliance obligations retroactively.

No Input Tax Credit: Key Implications

The prohibition on input tax credit (ITC) under composition scheme is the biggest trade-off. It means:

• GST paid on all purchases (raw materials, packaging, stationery, rent, utilities) is a sunk cost.
• You cannot recover or offset this GST against your sales GST liability.
• Your effective cost of goods increases by the GST amount.
• You must price your products or services competitively despite this higher cost.

This makes composition scheme most suitable for businesses with low input costs relative to sales (e.g., retailers, service providers, or traders with high margins). Manufacturing or wholesale businesses with heavy input costs may find composition scheme uneconomical.

Composition Scheme Restrictions and Limitations

TallyPrime enforces several restrictions once composition scheme is enabled:

• No inter-state supplies: You can supply goods/services only within your state (with rare exceptions). Inter-state supplies may disqualify you.
• No supply to registered dealers: Supplies to other GST-registered businesses may be restricted or subject to reverse charge rules depending on the commodity.
• No e-invoicing: Composition scheme taxpayers are exempt from e-invoicing (see e-invoicing in TallyPrime). TallyPrime will not generate IRN (Invoice Reference Number) for composition invoices.
• No e-way bill: Composition scheme taxpayers are exempt from e-way bill (see e-way bill in TallyPrime) for intra-state movement of goods.
• Mandatory 2-year tenure: Once opted, you must remain in composition scheme for at least 2 consecutive financial years.
• 5-year re-entry bar: If you exit composition scheme, you cannot re-enter for 5 years.

TallyPrime will automatically disable e-invoicing and e-way bill features for composition scheme companies, so you do not need to manually turn them off.

Quarterly Payment and Accounting in TallyPrime

Each quarter, you must pay the composition GST to the government. In TallyPrime, record this as follows:

1. Go to Gateway of Tally > Accounting Vouchers > Payment (or press Alt+F5).
2. Select your bank account as the payment source.
3. In the details section, select the Composition GST Payable ledger and enter the quarterly GST amount.
4. Select the Composition GST Paid ledger and enter the same amount (this records the payment).
5. Save the voucher (Ctrl+S).

This creates a clear audit trail in your books. At the end of each quarter, your Composition GST Payable ledger should show zero balance (if all payments are made on time).

Reporting and Reconciliation Under Composition Scheme

TallyPrime provides composition scheme-specific reports to help you track GST liability and filing deadlines:

• GST Liability Report: Go to Gateway of Tally > Display More Reports > GST Reports > GST Liability. This shows your total composition GST due by quarter.
• GSTR-4 Report: Go to Gateway of Tally > Display More Reports > GST Reports > GSTR-4. This generates the quarterly return data ready for filing on gst.gov.in.
• GST Ledger Reconciliation: Go to Gateway of Tally > Display > Ledgers > Composition GST Payable to reconcile your GST liability against payments made.

These reports help you verify that your TallyPrime records match the GSTR-4 you file with the government, reducing audit risk.

Common Issues and Troubleshooting

If composition scheme is not working correctly in TallyPrime, check these common issues:

• GST not calculating on sales invoices: Verify that composition scheme is enabled in F11 and that your sales items have GST rates assigned. Restart TallyPrime.
• ITC appearing on purchase invoices: This should not happen if composition is enabled. Check F11 to confirm Allow ITC is set to No. If the issue persists, back up your data and use Alt+Y (Data) > Repair to rebuild GST ledgers.
• GSTR-4 report showing zero: Ensure you have created and saved at least one sales invoice in the quarter. GSTR-4 data is generated from your invoice records.
• Cannot switch back to regular GST: You must wait until the 2-year mandatory period expires. After that, file a GST amendment on gst.gov.in to exit composition scheme.

For persistent issues, contact your Tally support or a Tally 3 Star Certified Partner who can access your company file and diagnose the problem.

Composition Scheme vs Regular GST: Quick Comparison

To help you decide, here is a quick side-by-side comparison:

Feature	Composition Scheme	Regular GST
Turnover limit	Rs 1.5-2 crore	No limit
Tax rate	1-6% (fixed)	5-28% (item-wise)
ITC allowed	No	Yes
Filing frequency	Quarterly (GSTR-4)	Monthly (GSTR-1, GSTR-3B)
e-Invoicing	Exempt	Mandatory (above threshold)
Compliance burden	Low	High
Best for	Small retailers, service providers	Manufacturers, wholesalers, exporters

Upgrading TallyPrime for Composition Scheme Support

Composition scheme features are available in all versions of TallyPrime (Silver and Gold). However, to ensure you have the latest GST compliance features, including composition scheme support and GSTR-4 filing, verify your TallyPrime version is up to date. See TallyPrime pricing and versions for details on Silver (Rs 22,500 + 18% GST, single user) and Gold (Rs 67,500 + 18% GST, unlimited LAN users).

Both versions include 1 year of Technical Support Services (TSS) free. After that, TSS renewal is Rs 4,500/year for Silver and Rs 13,500/year for Gold (plus 18% GST). TSS keeps your TallyPrime updated with the latest GST rules, composition scheme changes, and bug fixes. Without active TSS, TallyPrime continues to work offline but does not receive updates or connected services like e-invoice or e-way bill integration.

If you are currently using Tally 9 or an older version, upgrading to TallyPrime is essential for full composition scheme support and modern GST compliance. Global IT Care, a Tally 3 Star Certified Partner in Purnea, Bihar, can guide you through the upgrade process and ensure a smooth transition of your data.

Final Checklist Before Enabling Composition Scheme

Before you enable composition scheme in TallyPrime, complete this checklist:

• Verify your aggregate turnover is within the limit (Rs 1.5 crore for goods, Rs 2 crore for services).
• Confirm you are eligible to opt for composition scheme (not a manufacturer of certain goods, not an importer, etc.).
• File Form GST REG-15 on gst.gov.in to opt for composition scheme (government approval required before TallyPrime setup).
• Ensure your TallyPrime is version 6.x or later with active TSS for latest GST compliance.
• Back up your company data before enabling composition scheme.
• Consult your CA or tax advisor to confirm composition scheme is financially beneficial for your business.
• Plan to align the switch with the start of a financial year (1 April) for clean accounting.
• Train your accounting team on quarterly GSTR-4 filing instead of monthly GSTR-3B.

Composition scheme in TallyPrime is a powerful tool for small businesses seeking simplified GST compliance. However, it is not suitable for all businesses. Take time to evaluate whether the lower compliance burden outweighs the loss of input tax credit for your specific situation.

If you are running a small business in Purnea, Bihar, and are unsure whether composition scheme is right for you, or need help setting it up in TallyPrime, reach out to Global IT Care, a Tally 3 Star Certified Partner serving the region since 2010. We offer free consultation on GST strategy, TallyPrime setup, and quarterly compliance. Contact us at +91 75469 00951 or visit our office in Purnea to discuss your composition scheme options today.