What is the Central and State tax on Petrol in India? 

Petrol prices in India are a subject of much debate and concern due to their direct impact on the economy and the daily lives of citizens. The cost of petrol is influenced by various factors, with central and state taxes playing a significant role. This blog aims to simplify and explain the components of petrol pricing, particularly focusing on the Central and State tax on Petrol in India

What are the components in Petrol pricing?

As per the tax system in India, Excise duties over fuel, liquor, and cigarettes are considered as indirect taxes. There are some components of petrol which are determined for calculating the price of petrol. Those key components are as follows: 

  • Base Price:
    • The price of crude oil in the international market, which is determined by supply and demand dynamics globally. 
  • Freight Charges:
    • Costs associated with transporting crude oil to refineries. 
  • Refinery Processing:
    • The cost of refining crude oil into petrol. 
  • Central Excise Duty:
    • A tax levied by the central government. 
  • Dealer Commission:
    • The margin or commission paid to petrol pump dealers. 
  • State Value Added Tax (VAT):
    • A tax imposed by state governments, which varies from state to state. 

How much is Central Tax on Petrol?

The central government imposes several taxes on petrol, which contribute significantly to the final retail price. The Central Tax on petrol is uniform across India. The major components include: 

  • Central Excise Duty:
    • This is a fixed amount per litre of petrol, which the central government charges.
    • Over the years, this duty has seen various revisions, often to manage revenue and control inflation. 
  • Road and Infrastructure Cess:
    • Introduced to fund infrastructure projects, this cess is an additional levy on petrol. 
  • Agriculture Infrastructure and Development Cess (AIDC):
    • Aimed at improving agricultural infrastructure, this is another specific tax added to the price of petrol. 

These central taxes are uniform across the country and do not vary by state. 

Tax ComponentINR per litre
Basic Excise Duty 1.40 
Road and Infrastructure cess 18.00 
AIDC 2.50 
Total Central Taxes 21.90 

How much is the State Tax on Petrol?

Each state in India imposes its own tax on petrol, known as Value Added Tax. The VAT on petrol varies significantly from state to state, leading to different retail prices across the country. 

  • Value Added Tax:
    • This is a percentage-based tax on the base price plus central excise duty.
    • Each state government determines its VAT rate, which can be influenced by local economic conditions, revenue needs, and political considerations. 
  • Additional Levies:
    • Some states may impose additional taxes or cesses for specific purposes, such as state development funds or environmental taxes. 

The chart will provide a rough idea of the State Taxes on Petrol collected in various states and union territories.  

State / Union TerritoryVAT / State Tax (INR per litre)Additional Levies (if any)Total State Tax (Approx)
Andhra Pradesh 31% + INR 4 per litre  ~INR 35.00 
Arunachal Pradesh 20.00%  ~INR 20.00 
Assam 32.66% or INR 22.63 per litre  ~INR 22.63 
Bihar 26.00%  ~INR 26.00 
Chhattisgarh 25.00%  ~INR 25.00 
Delhi 19.40%  ~INR 19.40 
Goa 27.00%  ~INR 27.00 
Gujarat 20.00%  ~INR 20.00 
Haryana 25.00%  ~INR 25.00 
Himachal Pradesh 25.00%  ~INR 25.00 
Jammu and Kashmir 24.00% INR 5.50 per litre ~INR 29.50 
Jharkhand 22.00%  ~INR 22.00 
Karnataka 35.00%  ~INR 35.00 
Kerala 30.08% + INR 1 per litre  ~INR 31.08 
Madhya Pradesh 33.00% + INR 4.50 per litre  ~INR 37.50 
Maharashtra (Mumbai, Thane) 26.00% + INR 10.12 per litre  ~INR 36.12 
Maharashtra (Rest of State) 26.00% + INR 11.08 per litre  ~INR 37.08 
Manipur 36.50%  ~INR 36.50 
Meghalaya 31.62%  ~INR 31.62 
Mizoram 24.22%  ~INR 24.22 
Nagaland 29.80%  ~INR 29.80 
Odisha 32.00%  ~INR 32.00 
Punjab 24.79% + INR 10 per litre  ~INR 34.79 
Rajasthan 36.00%  ~INR 36.00 
Sikkim 25.26%  ~INR 25.26 
Tamil Nadu 34.00%  ~INR 34.00 
Telangana 35.20%  ~INR 35.20 
Tripura 23.00%  ~INR 23.00 
Uttar Pradesh 26.80%  ~INR 26.80 
Uttarakhand 25.00%  ~ INR 25.00 
West Bengal 25.00% INR 13.12 per litre ~INR 38.12 
Andaman and Nicobar Islands 6.00%  ~INR 6.00 
Chandigarh 22.45%  ~INR 22.45 
Dadra and Nagar Haveli & Daman and Diu 20.00%  ~INR 20.00 
Lakshadweep 0.00%  ~INR 0.00 
Puducherry 21.15%  ~INR 21.15 

The data provided here is based on the latest update. The rate will keep on changing. 

How do taxes influence petrol prices?

The combination of central and state taxes constitutes a substantial portion of the retail price of petrol. On average, taxes can account for over 50% of the final price paid by consumers. Here’s a step-by-step illustration of how petrol pricing works: 

  • Base Price and Freight:
    • Determined by international crude oil prices and freight charges. 
  • Refinery Price:
    • After refining, the petrol is ready for distribution. 
  • Central Excise Duty:
    • Added to the refinery price. 
  • Dealer Commission:
    • Added to cover the costs and profits of petrol pump dealers. 
  • State VAT:
    • Applied on the sum of the base price, freight, refinery price, central excise duty, and dealer commission. 

For example, in Karnataka the state tax on petrol is 35%. Let’s see how the breakdown of petrol is calculated for Karnataka. 

ComponentINR per litre
Base Price 50.00 
Freight Charges 0.37 
Refinery Price 3.65 
Total (Base Price + Freight + Refinery) 54.02 

Table 1 shows petrol price without tax and table 2 shows the rate after adding the state tax. That will be the amount user need to pay for Petrol. The rate shown here is as per basic calculation. 

ComponentINR per litre
Base Price + Freight + Refinery 54.02 
Central Taxes (Excise + Cess) 21.90 
Dealer Commission 3.86 
Karnataka VAT (Percentage on total) 35.00% 
Total VAT 27.93 
Total Price (Including all taxes) 107.71 

What is the impact of taxes on Economy?

High taxes on petrol have several implications for the customer and the economy perspective. Let us look some of them: 

  • Inflation:
    • Since petrol is a critical input for transportation, higher prices can lead to increased costs for goods and services, contributing to inflation. 
  • Consumer Spending:
    • Higher petrol prices reduce disposable income, affecting consumer spending and overall economic growth. 
  • Government Revenue:
    • Taxes on petrol are a significant source of revenue for both central and state governments, funding various development projects and welfare schemes. 

Government measures on Petrol price

In response to fluctuating international crude oil prices and public outcry over high petrol prices, the government sometimes adjusts tax rates. These adjustments can be temporary relief measures or more permanent policy changes. For instance, during periods of high crude oil prices, governments may reduce excise duty or VAT to provide relief to consumers. 

Conclusion

In conclusion, understanding what is the Central and State tax on Petrol in India helps demystify why petrol prices vary and why they are often high. The interplay between international oil prices, central excise duty, and state VAT creates a complex pricing structure.

While these taxes are crucial for government revenue, they also have significant economic implications, impacting everything from inflation to consumer behavior. 

FAQs

1. What are the Central taxes on petrol in India?

The Central Government imposes an excise duty on petrol. This tax is fixed and is collected by the Central Government. The rate of excise duty can vary depending on government policies. 

2. How do State taxes on petrol in India work?

Each state in India levies its VAT on petrol. The rate of VAT differs from state to state, which is why petrol prices vary across different states. The state government collects this tax. 

3. Why do petrol prices vary from state to state in India?

Petrol prices vary from state to state due to the different rates of VAT imposed by each state government. While the Central excise duty is uniform across the country, state VAT rates differ, leading to price variations. 

4. How does the Central excise duty affect petrol prices in India?

The Central excise duty is a significant component of the petrol price. Any increase or decrease in this duty directly impacts the retail price of petrol. The Central Government can adjust this duty based on economic conditions or policy decisions. 

5. Can both Central and State governments change the tax rates on petrol in India?

Yes, both the Central and State governments have the authority to change the tax rates on petrol. The Central Government can adjust the excise duty, while state governments can modify the VAT rate. Changes in these tax rates can lead to fluctuations in petrol prices. 

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