Composition Rate: Restaurant vs Trader vs Service Provider
GSTZone Desk · Updated 2026
Short answer
A trader or manufacturer under composition pays 1% of turnover, a restaurant pays 5%, and a service provider under the separate services composition scheme pays 6% — all without any input tax credit, and each governed by slightly different eligibility conditions.
In detail
Composition isn’t a single flat scheme with one universal rate — it’s really three related but distinct schemes, each calibrated to the different margin structures of trading, food service, and general services businesses.
Traders and manufacturers (outside a few notified excluded categories) sit at the lowest rate, 1% of turnover, reflecting that trading businesses typically run on thinner margins per rupee of turnover than a service business does.
Restaurants sit specifically at 5% — a rate that, as noted elsewhere in this series, happens to numerically match the standard (non-composition) standalone-restaurant rate, meaning the real choice for a restaurant owner is about compliance simplicity, not tax savings. Other service providers, under the separate ₹50 lakh composition scheme introduced later, pay 6% — the highest of the three, reflecting that service businesses generally run on higher margins.
GSTZone tip
Don’t assume ‘composition’ automatically means the lowest possible tax rate for your business type — compare the actual composition rate for YOUR category against what you’d effectively pay (net of ITC benefits) under regular GST before deciding purely on the rate.
Related questions
Can a manufacturer of any product opt for the 1% composition rate?+
No — manufacturers of certain notified goods (like ice cream, pan masala, and tobacco products) are specifically excluded from composition regardless of turnover.
Is the 6% services composition scheme available to all types of services?+
It has its own specific eligibility conditions and exclusions, similar in spirit to the main scheme — worth checking the notified conditions for your specific service category before assuming automatic eligibility.
Want the law itself?
Go deeper on the Composition Scheme
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