GST on Petrol in India

The reason petrol sits outside GST

Petrol is not exempt from GST; it sits outside the framework altogether. When GST launched in 2017, the Constitution (101st Amendment) Act specifically carved out five petroleum products. Section 9(2) of the CGST Act allows them to be brought in, but only from a date the GST Council formally notifies, and no such date has been set. The five excluded products are below.

Your actual cost at the pump

A litre of petrol carries four components: the base price set by oil marketing companies, a fixed central excise duty of roughly ₹19.90 per litre, a dealer commission of about 3.9%, and state VAT ranging from roughly 15% to 35%. Because most states levy VAT on the base price plus the excise duty, you pay tax on tax, a cascading effect GST was designed to remove. Taxes typically make up more than half the retail price. This is also why petrol costs different amounts in different states while a GST-covered product costs the same everywhere.

The real cost for businesses: no input tax credit

Because fuel is taxed outside GST, the excise and VAT paid on it are a permanent sunk cost. A logistics firm, a cab operator or any business burning fuel cannot claim input tax credit on it, unlike almost every other business input. This is one of the strongest arguments for bringing fuel into GST, and it is why transport-heavy sectors lobby for the change.

Which fuels and petroleum products are in GST

The exclusion is narrow. LPG for non-domestic use, lubricants, engine oil and fuel additives are all inside GST, generally at 18%. CNG and piped natural gas fall under HSN 27112100. So a business can claim ITC on engine oil but not on the diesel in the same vehicle.

Will petrol come under GST?

The Centre has repeatedly signalled willingness, but the decision rests with the GST Council and therefore with the states. Fuel VAT accounts for roughly 16 to 17 percent of state tax revenue, and states are reluctant to surrender that control without a long-term compensation guarantee. Estimates suggest petrol at the 18% standard rate could fall substantially in price, though a compensation cess could be added on top. As of now no date has been notified.

The tax stack on a litre

Take a rough Delhi example. The base price set by the oil marketing company might be around ₹55, on which the Centre adds roughly ₹19.90 of excise duty, the dealer adds about 3.9% commission, and the state then applies VAT on the base price plus the excise duty. That last step is the cascading effect: you pay state tax on top of central tax. The result is that taxes typically account for more than half of what you hand over at the pump, and the exact figure changes the moment you cross a state border.

The likely effect of bringing petrol in

Three things. Prices would become uniform nationwide, since a single rate would replace 30-odd different state VAT rates. The cascading would disappear, because GST is charged once on the value rather than layered on another tax. And registered businesses could claim input tax credit on fuel, which would materially cut costs for logistics, transport and delivery operations. Estimates at the 18% standard rate suggest a substantial fall in pump price, though the Council could add a compensation cess that narrows the gap.

Fuels that are inside GST

The practical upshot for a business running vehicles is awkward: you can claim credit on the engine oil but not on the diesel, on the AMC but not on the petrol. It is one of the clearest remaining gaps in the GST chain.

Frequently asked questions