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Why there is “NO” GST on Petrol and Diesel in India?

Effect of GST on petrol and diesel


Sravani Borra

5 months ago | 3 min read


After China, the United States, and the European Union, India is the world's fourth-largest energy consumer. India is the world's third-largest consumer of crude oil, with a population of 138 million people (as of 2020). The government intends to implement GST on July 1, 2017, with an effective date of July 1, 2017. The GST council has been inundated with queries about the impact of GST on gasoline and diesel pricing since its inception. The government and the GST council have been seen on multiple occasions looking for clear answers to controversial issues.


Why isn't the government bringing gasoline and diesel within the GST umbrella? What are the current petrol and diesel taxation structure? What would happen if these were included in the GST system? - Let's get this straight.

INTRODUCTION OF “GST” in way back 2017

  • GST has replaced all of India's direct taxes, leaving only the Goods and Services Tax (GST). However, some things are still exempt from the GST, one of which is petroleum products.
  • GST was introduced in India to create a "One Nation, One Tax" system that would apply to all commodities and services. On the other side, the Union Government is halfway to bringing petrol and diesel goods under GST. The GST, for example, covers kerosene, liquified petroleum gas (including domestic cooking gas), naphtha, and furnace oil.Several other items, including crude oil, aviation turbine fuel, gasoline, diesel, and natural gas, are still exempt from the GST.

Global Crude Oil Price vs Petrol Price in India Over The Last 10 Years

Petroleum products- Constitutionally included under GST

  • The federal government levies excise taxes, whereas each state imposes its own Tax (VAT).
  • Both the federal and state governments currently impose a tax.
  • The Goods and Services Tax Council will recommend the date on which goods and services tax will be levied on petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel, according to Article 279A(5) of the Constitution.

How are diesel and petrol prices are calculated?

Are you aware that in India, "taxes and margins on petrol prices exceed the real cost price"? This is correct!! Excise Duty (imposed by the Central Government of India) and VAT (Imposed by the States) on petrol and diesel account for almost 40 to 50 percent of India's total cost price of petroleum products. As a result, the state and federal governments each get significant money from excise tax and VAT, respectively. As a result, any reduction in tax and duty rates will have an influence on the government's revenue collections.

What if petroleum products come under GST?

  • Under the current circumstances, the cost of gasoline and diesel will be significantly reduced if GST is implemented. The GST system has five tax rates: 0%, 5%, 12%, 18%, and 28%.In the current context, it is unlikely that petrol and diesel would be taxed less than or more than 28 percent because they are a key source of revenue for the government.
  • Petrol and diesel will be supplied at a lower price for one liter of fuel under GST since it will be taxed at 28 percent. Even if the compensating cess is imposed in addition to the current 28 percent GST on gasoline, it will still be less expensive than the current rate.

Benefits & Challenges if subsumed under GST

  • Inflation: The price of oil and inflation are frequently seen to be linked in a cause-and-effect relationship. Inflation moves in lockstep with the rise and fall of fuel prices. The inclusion of petrol and diesel under GST could result in lower fuel prices, which would lower inflation. This could have a direct effect on gross household savings, resulting in a larger investible surplus for individuals.
  • Lower tax receipts: If these products are included in GST, the tax revenue collections of the federal and state governments will be drastically altered. A single Rs.2 cut in excise duty reduces annual earnings by almost Rs. 26,000 crores (around 10 percent of total collections from fuels). If the VAT is repealed, state governments will lose revenue as well.


If the government puts a GST on gasoline and diesel while compensating states to some amount, it will have to absorb a significant cut to revenues, affecting infrastructure spending and economic growth. The government needs to find a new source of income, and I believe that until that time comes, it will continue to play "heads I win, tails you lose" with the public.We must also keep an eye on international oil prices. They've increased by more than 65% since January 2017, when they were at their lowest. Going forward, OPEC countries' prospective supply discipline and the global demand scenario will be the primary drivers of oil price movement."Renewable energy sources," I feel, are the way of the future. The entire world must strive towards a more environmentally friendly future. We shouldn't be overly reliant on petroleum products. The government has to aggressively push for wind and solar power generation projects.




Created by

Sravani Borra








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