Cut in Excise Duty on Petrol

May 25, 2022

The union finance minister recently announced the excise cut on petrol and diesel to contain inflation. She also announced a ₹200 subsidy for those buying LPG cylinders under the PM Ujjwala Yojana scheme.

How much excise duty is reduced and what is the revenue implication?

Union Finance Minister announced reduction of central excise duty on petrol by Rs 8 per liter and on diesel by Rs 6 per liter. The price of petrol will be reduced by Rs 9.5 per liter and of diesel by Rs 7 per liter. This cut in excise duty will have a revenue implication of around Rs 1 lakh crore annually for the government.

What are the components of Excise duty?

Excise Duty on petrol and diesel includes Basic Excise Duty (BED), Special Additional Excise duty (SAED), Road & Infrastructure Cess (RIC), and Agriculture & Infrastructure Development Cess (AIDC. Only BED is sharable with states. SAED, RIC & AIDC are non-sharable.

Which states reduced taxes?

Several state governments followed the Central government’s decision and reduced taxes. Maharashtra announced a reduction in Value Added Tax (VAT) on petrol and diesel by ₹2.08 per liter and ₹1.44 per liter respectively. Kerala reduced tax on the prices of petrol and diesel by Rs 2.41 and Rs 1.36 per liter respectively. Rajasthan reduced VAT on petrol by Rs 2.48 per liter and diesel by Rs 1.16 per liter. Odisha also reduced taxes on petrol and diesel by Rs 2.23 and Rs 1.36 a liter respectively. Retail petrol and diesel prices differ from state to state due to local taxes like Value Added Tax (VAT) or freight charges.

Why there is a surge in petrol and diesel prices?

Due to the Russia-Ukraine war, Oil prices surged with Brent reaching USD 139 in March, the highest since 2008. Public sector Oil Marketing Companies (OMCs) such as Bharat Petroleum Corporation Ltd (BPCL), Indian Oil Corporation Ltd (IOCL), and Hindustan Petroleum Corporation Ltd (HPCL) revise the fuel prices daily in line with benchmark international prices and foreign exchange rates. Any revision of petrol and diesel prices will be effective from 6 am every day.

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