Rajan Wilcox
Fuel prices in India have been a cause for concern for many citizens, especially those who own vehicles. The central and state governments levy taxes on fuel, which constitute 50-55% of the total retailing price of diesel and 55% of petrol. While the base price and dealer profits remain the same across India, the diesel and petrol tax (excise duty + VAT) create variations in fuel prices in different states. The central government charges tax on diesel at Rs.15.8 per litre, while the state governments impose sales tax and VAT at varying rates.
| Characteristics | Values |
|---|---|
| Percentage of total retailing price of diesel that is tax | 50% |
| Central government tax per litre | Rs.15.80 |
| State government tax per litre | Rs.21.36 |
| Total tax per litre | Rs.32.90 |
| Retail cost per litre | Rs.83.22 |
| Dealer commission | 2.9% |
| Excise duty per litre | Rs.19.90 |
| VAT in Madhya Pradesh | 23% |
| VAT in Tripura | Rs.15.11 |
| VAT in Andhra Pradesh | 31% |
| VAT in Mumbai, Navi Mumbai, Thane, Aurangabad | 26% |
| VAT in the rest of Maharashtra | 25% |
| VAT in Delhi | 27% |
| Price per litre in Delhi | Rs.89.62 |
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What You'll Learn
Central government tax on diesel
In India, the central government levies an excise duty on diesel, which is a form of tax. This is set at a rate of Rs.15.80 per litre. This is a uniform tax across the country, but the final price of diesel can differ across states due to varying rates of VAT and sales tax, which are levied by state governments.
The central government's excise duty on diesel is one of the major charges in India's fuel pricing structure. Other charges include crude oil prices, dealer charges, VAT, and sales tax. The diesel tax in India is 50% of the fuel's retail value, which is made up of the central government's excise duty and the varying state taxes.
The central government's excise duty on diesel has changed over time. For example, in 2025, the central authorities raised the excise duty on diesel to Rs 10/litre. The central government's excise duty on petrol is higher, at Rs.19.90 per litre.
The diesel and petrol taxes in India are levied by the government to collect revenue from the public. These funds are intended to be used for developmental activities and contribute to the nation's progress. The central government's excise duty on diesel is not subject to the Goods and Services Tax (GST). However, there have been discussions about potentially including diesel under the GST framework in the future.
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State government tax on diesel
In India, the central and state governments levy taxes on diesel fuel, which vary across states. While the central government charges a tax of Rs.15.80/litre on diesel, the state governments impose additional taxes, including VAT and sales tax, which differ across states.
The state-level taxes on diesel contribute to the variation in fuel prices across India. The VAT and sales tax rates vary, leading to differences in the final price of diesel for consumers in different states.
For example, in Madhya Pradesh, the VAT on diesel is 23%, while in Tripura, as of July 2021, the VAT on diesel was Rs. 15.11. These varying rates of VAT and sales tax, determined by the state governments, result in fluctuations in diesel prices across India.
The central and state taxes on diesel in India are essential for generating revenue for developmental activities and contributing to the nation's progress. While the central government's excise duty remains constant across the country, the state-specific taxes create a unique fuel pricing structure in each state.
It is worth noting that crude oil prices, dealer charges, and excise duty are standardized across India. However, the state-by-state variations in sales tax and VAT result in different fuel prices, making it crucial for consumers to be aware of the applicable rates in their respective states.
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Excise duty
In India, the central and state governments levy taxes on fuel, which constitute 50% of the total retailing price of diesel fuel. The central government charges tax on diesel at a rate of Rs.15.80 per litre. This is known as excise duty and is levied by the central authorities. This rate is constant across the nation.
The rate of excise duty on diesel fuel has been subject to change over time. For example, between November 2021 and May 2022, the excise duty on diesel was reduced by Rs.16 per litre. As of July 2021, the VAT on diesel was Rs.15.11 in Tripura. In Madhya Pradesh, the VAT on diesel is 23%.
The variation in fuel prices across different states in India is due to the differences in state-level taxes, particularly VAT and sales tax. While the base price and dealer earnings remain the same throughout India, the diesel tax in India (excise duty + VAT) creates variations in fuel prices between states.
It is important to note that petrol and diesel do not currently come under the purview of Goods and Services Tax (GST). However, there have been discussions about potentially bringing them under the GST regime in the future.
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VAT
In India, the central and state governments levy taxes on fuel, which constitute 50% of the total retailing price of diesel fuel. However, taxes on diesel vary across states. This is because states impose different sales taxes or VAT amounts. For instance, Andhra Pradesh charges the highest tax on diesel in India, which is 31% VAT + Rs.4/litre VAT + Rs.1/litre Road Development Cess and VAT thereafter. In Mumbai, Navi Mumbai, Thane and Aurangabad, the diesel tax is 26% VAT + Rs.5.12/litre additional tax. For the rest of Maharashtra, the diesel tax is 25% VAT + Rs.5.12/litre additional tax. Madhya Pradesh has a VAT on diesel of 23%. As of July 2021, the VAT on diesel in Tripura was Rs.15.11.
The tax rates on diesel keep changing. One factor for higher VAT is to meet higher expenses due to the current global health crisis. The adverse geopolitical situation has also played a significant role in the rise in fuel prices.
The rising fuel prices in India have been a cause of worry for a long time for a major chunk of the Indian population. When fuel prices rise, almost all sectors of society are affected. This has also impacted the automobile industry, making it more expensive to own a vehicle.
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Sales tax
In India, the central and state governments levy taxes on fuel, which are subject to change. These taxes constitute 50% of the total retailing price of diesel fuel. However, the taxes on diesel vary across states, as each state government imposes different sales taxes or Value-Added Taxes (VAT) on top of the central government's excise duty.
The central government charges an excise tax of Rs. 15.80 per litre of diesel. This rate is consistent across India. On top of this, state governments add their own sales tax and VAT, which vary from state to state. For example, in Madhya Pradesh, the VAT on diesel is 23%, while in Tripura, as of July 2021, the VAT on diesel was ₹15.11 per litre. The state with the highest tax on petrol is Andhra Pradesh, with 31% VAT plus Rs.4/litre VAT plus Rs.1/litre Road Development Cess.
The variation in fuel prices across different states in India is primarily due to the differences in state-level sales tax and VAT. Even though the base price and dealer earnings remain uniform throughout the country, the diesel tax in India (excise duty + VAT) creates variations in fuel prices between states.
The adverse geopolitical situation and the need to raise funds for developmental activities have contributed to the increase in fuel prices. Additionally, the current global health crisis has led to higher expenses, resulting in higher VAT and excise duty rates.
It is important for consumers to stay updated with the tax rates on diesel in India, as fuel prices keep changing. Rising fuel prices have been a significant concern for Indian citizens, affecting various sectors of society and contributing to inflation.
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Frequently asked questions
The central government charges tax on diesel at Rs.15.80/litre. Additionally, VAT and sales tax are levied by the state governments, with varying rates. As of July 2021, the VAT on diesel in Tripura was ₹15.11.
The base price and dealer earnings for diesel are the same throughout India. However, the central and state taxes on diesel (excise duty + VAT) vary across states, leading to differences in fuel pricing.
The funds collected from diesel taxes are used by the government for developmental activities and contribute to the nation's progress.
