GST Composition dealer accounting in tally

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GST has introduced composition scheme beneficial for small businesses. This is a scheme where a registered person pays only a fixed lower rate of tax on total turnover of business. But the business has to fulfill the following conditions to opt in to the scheme.

  1. Turn over of a Fy shall be less than 1 crore. In case of Hmachal pradesh and North eastern states the limit is 75 lakhs.
  2. Input tax credit cannot be availed.
  3. Business cannot make interstate sale.
  4. Exempt supply dealer cannot opt for composition.
  5. Those who selling through online e-commerce platform like flipkart, amazon, cannot avail composition.
  6. If a composition dealer purchases supplies attracting reverse charge ,shall pay tax at normal rate.

Invoice of a composition dealer is called bill of supply

Composition dealer cannot raise Tax Invoice, Instead he must create a Bill of supply. He is not authorized to collect tax from customers, instead he has to pay the tax from his own pocket. Gst rules mandates the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply.

GST rate for composition scheme

Serial Number Category of Registered Person Rate of Tax
1 Manufacturers of goods (other than those specifically notified by govt. such as ice-cream, Pan masala, Tobacco products) 1% of the turnover
2 Restaurant Services 5% of the turnover
3 Traders 1% of the turnover
4 In case of:-Transaction under reverse charge

-Purchase from unregistered dealer

-Import of service

Normal Rates of Taxes

Composition accounting in tally erp 9

Based on the above factors, composition accounting is different from a gst regular dealer accounting. From Tally erp 9 version 6.4  created a separate segment for managing composition dealer accounting. Here we are discussing all the ledgers and transactions under GST.

Enable composition dealer in tally

Go to

F11 features > F3 Statutory

  • Enable Goods & service tax
  • Respond Yes to Set/alter GST details.

In GST details screen

  • Registration type = Composition
  • Enter company GSTIN
  • Tax rate applicable to you, refer above tax rate table.
  • Enable tax rate for purchase : Yes

Purchase Voucher entry for composition Dealer

A composition dealer can purchase from any type of dealer, he can make the following purchases.

  • Can purchase from an Interstate registered dealer.
  • Can purchase from an Local Registered dealer.
  • Can purchase from a local Un registered dealer.
  • Can purchase from a local composition dealer.

Let’s check how all these four entries are entered in tally.

Masters/ledger creation for composition dealer in tally erp 9

Let’s first create GST tax ledgers. This is slight different than creating tax ledgers for a regular dealer. Let’s get started. To create ledger as you know go to

Accounts Info> Ledger > create

CGST ledger creation

  • Name: CGST
  • Under : Indirect expense
  • Type of Ledger : Central tax
  • Appropriate  tax values in purchase invoice : No

SGST ledger creation

  • Name: SGST
  • Under : Indirect expense
  • Type of Ledger : State tax
  • Appropriate  tax values in purchase invoice : No

IGST ledger creation

  • Name: IGST
  • Under : Indirect expense
  • Type of Ledger : Integrated tax
  • Appropriate  tax values in purchase invoice : No

Purchase ledger creation

  • Name: Purchase A/c
  • Under : Purchase a/c
  • Inventory values are affected : Yes

Supplier Ledger creation interstate Registered dealer

  • Name :  Haryana Traders ( Interstate RD)
  • Under: Sundry Creditors
  • State : Haryana
  • Registration type: Regular
  • GSTIN: 06AADCB2230M1ZX
  • Set/alter gst details : No

Create local composition dealer supplier ledger

  • Name :  Delhi Traders ( Local composition)
  • Under: Sundry Creditors
  • State : Delhi
  • Registration type: Composition
  • GSTIN: 07AADCB2230M1ZV
  • Set/alter gst details : No

Create local registered dealer ledger for composition

  • Name :  Delhi Mart ( Local Registered dealer)
  • Under: Sundry Creditors
  • State : Delhi
  • Registration type: Regular
  • GSTIN: 07ABDCB2230M1ZV
  • Set/alter gst details : No

Create local dealer unregistered  supplier ledger

  • Name :  Delhi Store ( Local  Un Registered dealer)
  • Under: Sundry Creditors
  • State : Delhi
  • Registration type: Unregistered.

Stock item creation for composition dealer

Inventory info> Stock item>Create

  • Name: Chair Bamboo
  • Under : Choose Primary or any stock group created here.
  • Units: Pcs
  • GST Applicable : Applicable
  • Set/alter GST details: Yes

In the details screen

You can see the gst tax rate entry form here, because you have chosen “enable tax rate for purchase” while activating gst at F11 feature>statutory and taxation>set alter gst details.

Enter the GST rates and hsn code of commodity.

Type of supply : Goods

Pass purchase voucher entries for composition dealer?

Let’s take the following Purchase transactions examples,

How to enter purchase from a registered interstate supplier?

Composition dealer purchased 100 No bamboo chair from Haryana Dealer an interstate registered dealer @ 3199 + 18 % GST.

A registered interstate dealer issue bills with IGST. The purchase bill received from the Haryana Traders includes IGST. The enter this purchase invoice go to,

Accounting Voucher > F9 Purchase

See the below images of Purchase entry

composition dealer purchase from interstate dealer

Composition dealer Purchase from a composition dealer accounting entry

Composition dealer purchased 10 No bamboo chair from Delhi Traders ( Local composition dealer )  @ 3800.

As you  know a composition dealer cannot issue a tax invoice instead he is issuing Bill of supply . In bill of supply he cannot charge any kind of gst taxes. So the entry will be as follows.

Purchase from a composition dealer

Composition dealer’s  Purchase from local registered dealer.

Composition dealer Purchased from Delhi Mart ( Local Registered Dealer)  5 pcs of bamboo chair  @ 3650  + CGST – 9% +SGST- 9%.

Local registered dealer issue invoice with CGST & SGST.Let’s see how to enter purchase invoice from local registered dealer.

purchase from local registered dealer

Composition dealer’s  Purchase from local unregistered dealer.

Composition dealer purchased bamboo chair from Delhi store (Local unregistered dealer) 3 pieces @ 3800 .

An un registered dealer issue invoices without tax.  let’s see how a  dealer enter purchase invoice from unregistered dealer.

purchase from unregistered dealer

Sales voucher entry for composition dealer in tally erp 9

No interstate sale can be made by a composition dealer, He can make sale to a local registered dealer and a local composition dealers only. Let’s enter these transactions into tally.

Master creation for  sale entry

The following masters /ledgers required for sale entry.

Create local composition customer

Go to ledger creation screen.

  • Name :Delhi customer ( Local composition ) Use your customer name For eg: Samrat Traders, I used this name only for quick understanding and identification.
  • Under : Sundry Debtors
  • State : Delhi ( same state of your company registered)
  • Registration type : Composition
  • GSTIN : GSTIN of your customer ( 07AAACB5343E1Z2)

Create local registered customer

  • Name :Delhi Regitered customer 
  • Under : Sundry Debtors
  • State : Delhi ( same state of your company registered)
  • Registration type : Regular
  • GSTIN : GSTIN of your customer  ( eg : 07AAGCB5343E1Z3)

Pass sales voucher entry for composition

While passing sales voucher entry, you are not allowed to charge any type of taxes in the invoices, also you cannot avail input tax credit. Hence when selling a product you have to calculate the total expense of purchase  including tax+ margin. Let’s see how to sell the product

We are selling the products purchased from Interstate dealer :

Total cost including IGST for 10 bamboo chair      37748.20

Addition exp incurred                                                          3000.00

Total cost                                                                                 40748.20

Cost / pc  40748.2/10                                                           4075.00

Add Margin                                                                                  925.00

Selling price                                                                               5000.00

Sale to a local composition dealer

Sold 5 No bamboo chair to Delhi customer ( local comp dealer) @ 5000 / pcs

In the sale invoice just need to enter items and amount only.

sales to composition dealer

Sale to a registered dealer

Sale to a registered dealer is also similar to a composition dealer. no tax can be entered

Sold  3 No bamboo chair to Delhi registered customer @ 4900/ pcs , the entry will be look like,

sale to a registered customer

Print Bill of supply

To print bill of supply, Just press ALT+ P from the sales voucher entered. You will find Bill of supply instead of TAX Invoice as heading.

Bill of supply

Balance sheet & P& L A/c affect

You can view the affect of entries in the balance sheet and profit and loss account.

In balance sheet you will find the balances of Sundry creditors from whom we purchased goods and the balance of sundry debtors to whom we sold .

In profit and loss, you will find the taxes are accounted as indirect expense as per our setting

profit and loss affect of composition dealer transaction

If you want the indirect expense to be added to purchase expense , do the following

When creating cgst, sgst, igst ledger there is an option

Appropriate tax values in purchase invoice : Yes

Alter all purchase vouchers you entered  and simply save again or rewrite the company.

Now in profit & loss account ,you will find the tax values are added to the purchase as direct expense.

tax values are added to purchase

GSTR- 4 The quarterly return of a composition dealer

A composition dealer is required to furnish only one quarterly return, called GSTR- 4.  Tally provides you a GSTR-4 Report at

Display>Statutory Report>GST>GSTR-4

We have created a separate post on how to file GSTR-4 return using tally erp 9. Hope you enjoyed learning this lesson.

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