Excise Duty on Petrol and Diesel

Excise duty is nothing but the tax applicable on petrol and diesel. Retailers act as intermediaries and collect the excise duty on petrol and diesel from customers and pay it to the Government of India. Scroll through this article to understand more about excise duty on petrol meaning, tax rates on fuel, and more.  

What is Excise Duty on Petrol and Diesel in India?

In 2021, the excise duty on petrol and diesel was Rs 27.90 and Rs 21.80 per liter. In May 2022, the central government announced a reduction in fuel tax. Following that, the excise duty on petrol and diesel came down to Rs 19.90 and Rs 15.80 per liter. The central excise duty structure covers 20% of the petrol price and 17.6% of the diesel price in India. 

Breakdown of Excise Duty on Petrol in India

Breakdown of Excise Duty on Diesel in India

Why Does the Government Levy Central Excise Duty on Petrol and Diesel?

The primary goal of excise duty on petrol and diesel is for the government to collect lump sum revenue. The amount collected from excise duty rates in India is quite substantial. The funds from energy taxation in India can be used for various developmental purposes. 
The latest reduction in fuel tax will create excise duty implications of up to Rs 1 trillion. This effort is targeted toward improving the rising inflation in the nation. 
 

Important Factors Determining the Excise Duty in India

Have you ever wondered what factors determine the applicable petrol and diesel tax in India? Check out the key factors influencing excise duty on petrol and diesel:

●    Supply and Demand

If the demand for fuels is low, the Central government will attempt to increase its tax collection to fulfill regular financial obligations. A high excise duty protects the government from such a scenario.

●    Price of Crude Oil

You will notice a fuel duty hike when the cost of crude oil in the international market is low. But an increase in the cost of crude oil leads to lower excise duty.

●    Financial Emergency

Petrol and diesel taxation are not included under GST. Therefore, the Indian government can increase fuel taxes during any financial emergency, like a healthcare crisis or global recession. 
For instance, the government of India is supplying food grains to poor individuals and improving healthcare facilities. It is creating a financial burden, leading to higher fuel taxes.