Taxes on Petrol and Diesel in India

The energy sector of a country is a deciding factor for its economic performance of a country. A country needs to keep the prices of fuel to ensure that there is equilibrium inflation.

The price of the fuel depends on the country’s source of crude whether it is extracting it or it is importing it. India is a net importer of crude oil and heavily depends on the middle east to get its hand on crude oil.

India is a rising economy with one of the fastest-growing economies in the world. It is also the 5th largest economy in terms of GDP nominal and 3rd largest in terms of Purchasing Power Parity.

For an economy like India, there is a constant need for the energy which it gets from importing crude oil. Imported crude oil gets processed and various petroleum products get derived out which is used for consumption at home as well as exported to other countries.

India is the 4th largest exporter of refined petroleum including gasoline. Recently, India inaugurated an India-Bangladesh Friendship Pipeline which will be used to export oil to Bangladesh at nominal prices.

Domestically, crude oil is used to produce petrol, diesel, and LPG. Petrol and Diesel are used in vehicles or generators whereas LPG is majorly used for cooking fuel.

Whenever the price of crude oil goes up the prices of food, products, and everything goes up as well due to the use of diesel in transport vehicles.

Transportation is essential for Goods and Services to reach various locations hence, the cost of transportation decides the pricing of the products and therefore the inflation.

One big component of fuel prices is the taxes involved in it. In India, the State Government and Central Government both take a cut from the taxes.

Various factors decide the fuel prices in India like taxes, geopolitics, production, dollar prices, etc. In this article, we will discuss taxes on Petrol and Diesel in India along with the prices involved.

But first, let’s discuss what are the factors that affect fuel Prices in India.

Taxes on Petrol and Diesel in India

Factors Affecting the Fuel Prices in India

The following are the factors affecting fuel prices in India-

Geopolitics

Geopolitics is a very important factor that determines fuel prices in India. India is a net importer of crude oil and kind of geopolitical tensions could lead to an increase in prices of the crude oil.

In case of war or any other conflict, the price of crude oil instantly grows and makes the inflation index go up s well.

Production

The Organization of the Petroleum Exporting Countries or OPEC is a group of countries that exports oil to other countries.

These countries formed a group to control the world’s oil markets and manipulate the prices of the oil to ensure optimum pricing of crude as well as optimum supply in the market.

These countries cooperate and decide the production level of crude oil and maintain a grip on the supply side of the ecosystem. This makes the prices of the crude oil work in their favor and was able to extract the maximum profits out of the entire sales.

There is also an organization called OPEC+ which is an extension of OPEC and includes 10 more countries including Russia, Kazakhstan, Azerbaijan, Mexico, and Oman.

The followings are the OPEC Countries and OPEC Plus countries in the world

  • Islamic Republic of Iran
  • Iraq
  • Kuwait
  • Saudi Arabia and Venezuela
  • Qatar (1961)
  • Indonesia (1962)
  • Libya (1962)
  • the United Arab Emirates (1967)
  • Algeria (1969)
  • Nigeria (1971)
  • Ecuador (1973)
  • Gabon (1975)
  • Angola (2007)
  • Equatorial Guinea (2017)
  • Congo (2018)

Inflation

Inflation can be defined as the increase in the price of Goods and Services within a year.  In simple terms, when the price of the commodity increases, we term the increase as an Inflated amount.

Inflation reduces the purchasing power of the currency and often results in the central Bank cutting the supply of the currency from the market by increasing the inflation rate.

Demand

During the pandemic, the prices of Crude drastically went down and made the prices of crude go down as well. This is due to the lockdowns in half of the world and only a few commodities were available in the market. Pandemix severely hit the supply chain and made a huge impact on demand.

There was a sudden surge when the lockdown started opening up which normalized the crude procurement and made the prices of the crude optimum.

Taxes

While paying for the fuel, one has to also pay taxes on the fuel. The taxes are paid to the government and with this money, the government can do various welfare schemes.

The following is a detailed breakup of the taxes which is charged on fuel prices in India-

Detailed Prices Breakup Petrol Price Calculation*Diesel Price Calculation *
Basic OMC Cost Calculation  
Crude Oil (from Brent Crude + Russian Import + Other Crude Import) Rs 40 per LitreRs 40 per Litre
OMC Processing Cost (Freight + Refinery Processing + Refinery Margins + OMC Margin + Logistics + Operational Costs) Rs 7.35 per LitreRs 8.15 per Litre
Buffer for Future Inflationary Aspect etcRs 10 per LitreRs 10 per Litre
Fuel Price after Processing (Ready to send to Petrol Pump)Rs 57.35 per LitreRs 58.15 per Litre
   
Central Government Taxes & Dealer Commission  
Additional: Excise Duty + Road Cess as Charged by Central Government (after Excise Duty Cut in November)Rs 19.9 / Litre of PetrolRs 15.8 / Lit on Diesel
Commission to Petrol Pump DealersRs 3.8 per LitreRs 2.6 per Litre
   
Fuel Cost Before VAT  
Cost as of 4th Feb 2023Rs 81.05 per LitreRs 76.55 per Litre
   
VAT Calculation  
Additional: VAT (19.4% on Petrol and 16.75% on Diesel.  Additional Cess on Diesel) (4th Feb 2023) – DelhiRs 15.67 / Litre of PetrolRs 13.07 / Litre on Diesel
   
Final Retail Price as on 4th Feb 2023 in DelhiRs 96.72 per LitreRs 89.62 per Litre
Final Retail Price as on 4th Feb 2023 in Mumbai (due to VAT as charged over Rs 30 per Litre in Maharashtra and over Rs 20 per Litre on Diesel)Rs 106.31 per LitreRs 94.27 per Litre

List of State-Wise petrol prices

The following is the list of state-wise petrol prices-

StatePetrol Price
Andaman And Nicobar84.1 ₹/L
Andhra Pradesh110.48 ₹/L
Arunachal Pradesh93.02 ₹/L
Assam97.02 ₹/L
Bihar107.59 ₹/L
Chandigarh96.2 ₹/L
Chhatisgarh102.45 ₹/L
Dadra And Nagar Haveli94.43 ₹/L
Daman And Diu94.24 ₹/L
Delhi96.72 ₹/L
Goa97.84 ₹/L
Gujarat96.7 ₹/L
Haryana96.2 ₹/L
Himachal Pradesh96.96 ₹/L
Jammu And Kashmir101.76 ₹/L
Jharkhand99.84 ₹/L
Karnataka101.94 ₹/L
Kerala107.44 ₹/L
Madhya Pradesh108.65 ₹/L
Maharashtra106.31 ₹/L
Manipur101.25 ₹/L
Meghalaya96.56 ₹/L
Mizoram95.64 ₹/L
Nagaland99.46 ₹/L
Odisha103.19 ₹/L
Pondicherry96.28 ₹/L
Puducherry96.28 ₹/L
Punjab96.2 ₹/L
Rajasthan108.48 ₹/L
Sikkim102.7 ₹/L
Tamil Nadu102.63 ₹/L
Telangana109.66 ₹/L
Tripura99.49 ₹/L
Uttar Pradesh96.57 ₹/L
Uttarakhand95.04 ₹/L
West Bengal106.03 ₹/L

FAQ

What is the VAT on diesel and petrol in Delhi?

The VAT or value-added tax is a tax imposed by the State Government on selling fuel in the state. Delhi is a Union Territory and the VAT goes to the Delhi Government. Currently, the VAT Charged on Diesel and petrol by the Delhi Government is 19.40%.

What is the cess for in fuel price?

Cess is an extra tax charged to the taxpayer to meet the requirement of the country’s development. Cess on Fuel prices is charged for agriculture and infrastructure development of the country.

What is a surcharge and how to avoid it?

The surcharge is an additional charge which is to be paid by the person on the purchase of the fuel. It is not mentioned in the price of the good or service which makes the final price that is to be paid by the customer much higher. You cannot avoid a surcharge however, you can reduce it by using a fuel credit card or even any other credit card to make the payment at the petrol pump.