Composition and exempted sale tax

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For traders under the composition scheme, exempt supplies are excluded from tax liability, meaning you only pay 1% on taxable turnover. However, you must still report exempt sales separately when filing CMP-08. Manufacturers, on the other hand, must include exempt supplies in their total turnover and pay the 1% composition tax on both taxable and exempt goods.

Mahabir Prasad Agarwal

Mahabir Prasad Agarwal (Querist)

25 November 2025 In case of composition, whether 1% tax is to be paid on exempted sale also ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

25 November 2025 For Traders (Composition Dealers in Goods)
- Exempt supplies are excluded from tax liability.
- They only pay 1% (or applicable rate) on taxable turnover.

- While filing CMP-08, composition dealers must report exempt supplies separately under “Outward supplies (including exempt supplies).”
- Even though traders don’t pay tax on exempt sales, they must disclose them for compliance.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

25 November 2025 For Manufacturers (Composition Dealers in Goods)
- Exempt supplies are included in turnover for tax calculation.
- They must pay 1% on the entire turnover (taxable + exempt).
- Example: If a manufacturer sells ₹40 lakh taxable goods and ₹10 lakh exempt goods, tax is payable on ₹50 lakh.

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