Sylvie Willis
Fuel tax in India is levied by the central and state governments on the retail prices of petrol and diesel. The central government charges a tax on diesel at Rs.15.80/litre, while the state governments impose sales tax, VAT, and other levies, which vary from state to state. In May 2020, India had the highest taxes on fuel in the world, with taxes comprising over 69% of the pump price of petrol and diesel.
| Characteristics | Values |
|---|---|
| Percentage of pump price that is tax | 50-69% |
| Percentage of selling price that is tax | 55% |
| Excise duty on petrol | Rs. 19.90 per litre |
| Excise duty on diesel | Rs. 15.80 per litre |
| VAT on petrol in Madhya Pradesh | 33% |
| VAT on diesel in Madhya Pradesh | 23% |
| VAT on petrol in Andhra Pradesh | 31% |
| VAT on petrol in Mumbai, Navi Mumbai, Thane, Aurangabad | 26% |
| VAT on petrol in the rest of Maharashtra | 25% |
| Dealer commission on petrol | 3.9% |
| Dealer commission on diesel | 2.9% |
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What You'll Learn
- Fuel tax in India is among the highest in the world
- Central and state government taxes make up nearly half of the pump price
- Excise duty, sales tax, VAT, and dealer commission are included in the retail price
- Crude oil prices, dealer fees, and excise taxes are the same across India
- State-by-state variations in sales tax and VAT cause fuel price differences
Fuel tax in India is among the highest in the world
Fuel tax in India is indeed one of the highest in the world. In May 2020, taxes on fuel in India comprised over 69% of the pump price, the highest in the world at the time.
In India, fuel tax is levied by both the federal and state governments. The central government charges an excise duty on petrol and diesel, which is levied at a national level and remains the same across the country. In addition, state governments impose sales tax, Value Added Tax (VAT), and other levies, which vary across states. As a result, fuel prices differ across states. For instance, in Delhi, the price of petrol in February 2021 was ₹89.54 (US$1.10) per litre, of which ₹32.98 (39¢ US) went to the Central Government in excise and customs tax, and ₹19.32 (23¢ US) was collected by the state government in sales tax and entry tax. Thus, a total of ₹52.30 (62¢ US) was collected in taxes, accounting for around 58% of the total price.
The high fuel taxes in India are used to collect lump-sum revenue from the public, which is mainly used for developmental activities and contributes to the nation's progress. Fuel tax is also used as an ecotax in some countries, to promote ecological sustainability. However, the increase in duty on fuel may not offer any major relief to the government as the demand for oil in the country has also taken a big hit.
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Central and state government taxes make up nearly half of the pump price
India has some of the highest taxes on fuel in the world. Central and state government taxes make up nearly half of the pump price. The central government charges excise duty on petrol and diesel, which is levied at a national level and remains constant across the country. The central excise tax on petrol is Rs. 32.90 per litre, while on diesel, it is Rs. 31.80 per litre. In Delhi, the central government collects Rs. 32.98 (39¢ US) per litre in excise and customs tax.
On top of the central excise duty, state governments levy their own taxes, which vary across India, causing fuel prices to differ from state to state. These taxes include Value Added Tax (VAT), sales tax, and other cesses. For example, in Delhi, the state government collects Rs. 19.32 (23¢ US) per litre in sales tax and entry tax. In Andhra Pradesh, the VAT is 31%, the highest in the country, plus Rs. 4 per litre VAT and Rs. 1 per litre Road Development Cess. In Mumbai, Navi Mumbai, Thane, and Aurangabad, the VAT is 26% plus an additional tax of Rs. 5.12 per litre. Madhya Pradesh, Kerala, Rajasthan, and Karnataka levy over 30% VAT, the highest among states.
The total tax on petrol in India is 55% of the overall selling price, while diesel tax is 50% of the fuel's retail value. In Delhi, taxes make up 69% of the pump price of petrol and diesel. For every litre of petrol retailing at Rs. 71.26, taxes amount to Rs. 49.42. For every litre of diesel at Rs. 69.39, taxes are Rs. 48.09. The government uses the revenue generated from fuel taxes for developmental activities and the nation's progress.
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Excise duty, sales tax, VAT, and dealer commission are included in the retail price
In India, the central and state governments levy taxes on petrol and diesel. The central government charges an excise duty on the production of petroleum products, while state governments tax their sale.
Excise duty is levied by the central government at a higher rate on petrol than on diesel. For instance, in Delhi, the excise duty on petrol was Rs 32.98 per litre, while on diesel, it was Rs 31.83 per litre. The central excise tax on diesel is Rs 31.80, while the excise duty levied by the central government is Rs 19.90 per litre. The central government raised the excise duty on petrol and diesel to Rs 13 per litre and Rs 10 per litre, respectively, in April 2025. The government is expected to gain close to Rs 1.6 lakh crore in additional revenues from these hikes.
Sales tax and VAT are levied at varying rates by the state governments. VAT rates vary from state to state, with Madhya Pradesh, Kerala, Rajasthan, and Karnataka levying over 30% VAT, the highest among states. VAT in Madhya Pradesh is 23% on diesel and 33% on petrol. Andhra Pradesh charges the highest tax on petrol, with 31% VAT, Rs 4 per litre VAT, Rs 1 per litre road development cess, and VAT thereafter. For Mumbai, Navi Mumbai, Thane, and Aurangabad, the applicable petrol tax is 26% VAT and Rs 5.12 per litre additional tax. In Delhi, VAT is 30% on petrol and 16.75% on diesel.
Dealer commission also varies for petrol and diesel and differs according to the location of fuel pumps. It ranges from Rs 2-4 per litre, with Delhi's dealer commission on petrol being Rs 3.57 per litre and Rs 2.51 on diesel.
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Crude oil prices, dealer fees, and excise taxes are the same across India
India has the highest taxes on fuel in the world. Taxes comprise over 69% of the pump price of petrol and diesel. In Delhi, dealers pay Rs 18.28 per litre for petrol, including the base price and freight. After adding VAT, excise duty, and dealer commission, the retail price shoots up to Rs 71.26 for a litre. Similarly, for diesel, dealers pay Rs 18.78 a litre, which retails at Rs 69.39 after taxes. The excise duty on petrol is Rs 32.98 a litre, while on diesel, it is Rs 31.83 per litre. VAT varies from state to state, with Madhya Pradesh, Kerala, Rajasthan, and Karnataka levying over 30% VAT, the highest among states. Dealer commission also varies for petrol and diesel and differs based on the location of fuel pumps, ranging from Rs 2-4 per litre. In Delhi, the dealer commission is Rs 3.57 a litre for petrol and Rs 2.51 for diesel.
Crude oil prices are volatile due to geopolitical tensions, such as the Israel-Hamas conflict, and OPEC's production decisions. These factors impact oil prices in India and create challenges and opportunities for investors. The price of Brent crude oil has been hovering near $73 a barrel due to escalating Israel-Iran tensions and concerns over potential disruptions to the Strait of Hormuz, a vital oil route. While analysts believe a price of $150 per barrel is unlikely, they warn of potential spikes to $120, which would affect global inflation and India's economy.
Dealer fees are another component of fuel prices in India. These fees are charged by dealerships for processing the paperwork associated with a vehicle purchase. In some states, these dealer or "doc" fees are limited by law, while in others, they are unregulated. Dealers may offer a vehicle at an attractive price but then add a high doc fee to the contract. Buyers should be aware of these potential extra fees and negotiate accordingly before signing a contract.
Therefore, while crude oil prices, dealer fees, and excise taxes are the same across India, the pump price of fuel varies due to differences in VAT and dealer commission from state to state.
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State-by-state variations in sales tax and VAT cause fuel price differences
Fuel prices in India vary across states due to differences in the taxes levied by the Central and State Governments on the retail prices of petrol and diesel. While crude oil prices, dealer charges, and excise duty remain uniform across India, state-specific sales tax and Value-Added Tax (VAT) cause fuel price differences.
Petrol tax in India makes up 55% of its retailing price, while diesel tax constitutes 50% of its retail value. On top of this, the state governments levy VAT and sales tax at varying rates, leading to differences in fuel prices across the country. For instance, in Delhi, the retail price of petrol includes taxes of Rs 49.42 per litre, while for diesel, it is Rs 48.09 per litre. The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel, which make up 31% and 34% of the retail prices, respectively. Delhi levies a VAT of 30% on petrol and 16.75% on diesel.
Andhra Pradesh charges the highest tax on petrol in India, with a 31% VAT, Rs 4 per litre VAT, Rs 1 per litre Road Development Cess, and subsequent VAT. In contrast, Mumbai, Navi Mumbai, Thane, and Aurangabad have a petrol tax structure of 26% VAT and Rs 5.12 per litre additional tax. The central government charges a tax on diesel at Rs 15.80 per litre, with additional VAT and sales tax levied by the respective state governments.
Madhya Pradesh, Kerala, Rajasthan, and Karnataka levy over 30% VAT on petrol, which is the highest among the states. Madhya Pradesh has a VAT on diesel and petrol of 23% and 33%, respectively. Odisha levies a 32% VAT on petrol, while Uttar Pradesh charges 26.8% VAT or Rs 18.74 per litre, whichever is higher.
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Frequently asked questions
A fuel tax is an excise tax imposed on the sale of fuel, usually for transportation.
In India, fuel is taxed by both the federal and state governments. The central government levies an excise tax on petrol and diesel, which is constant across the country. State governments impose varying rates of sales tax and VAT on top of this.
Fuel tax in India is approximately 50-60% of the pump price. However, some sources state that the tax is as high as 69%.
The central excise tax on petrol is Rs.19.90 or Rs. 32.90 per litre, and on diesel is Rs.15.80 or Rs. 31.80 per litre. VAT varies by state, with Madhya Pradesh, Kerala, Rajasthan and Karnataka levying over 30% VAT.
Fuel prices vary across states due to the different rates of sales tax and VAT imposed by state governments.
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