INCITE - Books and Videos
Home  »  Blog   »   Will Petroleum products come into the ambit of GST?

Will Petroleum products come into the ambit of GST?

Will Petroleum products come into the ambit of GST?


Petroleum products have become an indispensable part of our day-to-day life, and we can’t imagine our life without it. But the petroleum prices are sky rocketing. This hike directly or indirectly affects all the major sectors like transportation, textiles, auto, FMCG etc., from 16th June 2017 Government implemented daily revision of fuel cost, which put a burden on consumers. Earlier, the prices were fixed twice in a month, but now the change in price happens at 6 a.m. every morning. The steady increase in prices had somewhat gone unnoticed till the petroleum prices touched a three year high. The Introduction of GST on 1st July 2017 was the biggest tax reform in India. By now everyone knows that Goods and Services Tax is a unified tax which incorporated all the taxes into one and further a certain percentage of the total tax goes to the Central exchequer and the rest to the State exchequer. After the rollout of GST, although petroleum products were not covered under the Goods and Services Tax, however, a significant change that happened was that the prices of petrol and diesel started being revised or changed daily as opposed to the previous system of fortnightly revision of prices. In fact, Minister for Petroleum DharmendraPradhan has made a statement saying that inclusion of petroleum under GST is the only way for rational pricing and also provides relief to the customers.

Legal background:

Section 9 of CGST Act, 2017 and Section 5 of IGST Act, 2017 has excluded petroleum products (Petroleum Crude, High Speed Diesel, Petrol, Aviation Turbine Fuel & Natural gas) from the ambit of GST upto the date as decided by the GST Council.

Why petroleum products are excluded from GST?

Because states wanted to levy taxes on their whims and fancies to increase their treasury balance and spend! (1 minute silence, if you think that they spend for public)

It was a decision made by the Empowered Committee as these (basic petroleum products such as petroleum crude, high speed diesel, motor gas, and aviation turbine) are the main sources of income for the States. The minister for petroleum and natural gas said, “42 per cent of the central tax iscoming to states. And states have their own tax mechanism (See image below). So a substantial portion of tax collection is utilized and coming to the states.”Bringing petroleum products under the purview of the GST will result in big losses for both the Centre as well as states, resulting in a huge hit on their revenues and making the state exchequer poorer.

Source: (Petroleum Planning and Analysis Cell Research report)

What will happen if petroleum products are included in the ambit of GST?

As GST is Value Added Tax, GST paid on inward supply of petroleum products by registered person can be taken as input tax credit and adjusted against their GST liability. Due to this, the purchase cost of petroleum products gets reduced.

India demands the inclusion of Petrol and other petroleum products in GST due to the following reasons;

  1. Results in uniform taxation and abolition of other indirect taxation.

  2. Lower Revenue Neutral Rate (RNR).

  3. To check inflation which will be there; after implementation of GST in India.

  4. To complete the chain and extend real benefit of GST.

  5. To boost the GDP.

Changes happens to prices of petroleum products if it comes under GST

Table No. 1: Price buildup of Petrol and Diesel at Delhi effective 5th December 2017

The above table shows the calculation of retail selling price of petroleum in Delhi as on 5thDecember 2017. Retail selling price of petrol was ₹ 69.29/Ltr which includes Excise duty, Dealers’ commission and VAT. ₹ 37.79/Ltr is the excess amount paid over the price charged to dealers (₹ 31.50/Ltr). Retail selling price of Diesel was ₹ 58.48/Ltr which includes Excise duty,Dealers’ commission and VAT. Rs. 26.48/Ltr is the excess amount paid over the price charged to dealers (₹ 31.99/Ltr).

From this we can understand that main reason for hike in petroleum price is amounts paid on

Excise duty, Dealers’ commission and Value Added Tax by different States.

Presently the prices of petrol and diesel influenced by heavy taxes levied by Central and State governments by way of Excise duty and VAT.

Table No. 2: Tax Percentage on Petrol and Diesel

From the above table it is crystal clear that the consumers have to pay 97.52% and 69.41%

by way of tax on petrol and diesel respectively.

Let’s have a glimpse on the possible price scenario of petrol and diesel under GST.The below calculations (Table No. 2 and 3) are assumptions-based on price of petrol and diesel in Delhi on 5thDecember 2017. The tables give a clear picture about the calculation of retail price of petrol and diesel after including petroleum products under GST at different slabs.

Calculation of Petrol prices under GST

Assuming that the government brings petrol prices under 12 percent GST bracket, then petrol price could come down to ₹35.28 in Delhi while at 18 percent, petrol price will come down at 37.17 per litre. If the government pushes petrol to highest GST tax bracket of 28 percent, then it will cost ₹40.32 per litre in the national capital. Even if the government decided to levy luxury cess on petrol the price will be only ₹49.19/Ltr which is far away from current retail price of Petrol

ow the price of petroleum products are fixed and why we see various facebook/twitter posts that price of petrol in India is high compared to other countries?

The prices of petroleum products in the country are benchmarked to international product prices. Generally, the prices of sensitive petroleum products in the country are higher/lower than other countries due to various factors, including prevailing tax regime and subsidy compensations by the respective Governments. If petroleum products are brought into the ambit of GST, then we can have a uniform price across the country, which otherwise now is different in different states.


Petrol prices and GST are the two key issues in India today. Some reports suggest that the cost of petroleum prices in India is more than any other Southeast Asian countries. The main reason behind this is the extra charges on petroleum products like Excise duty, dealers’ commission and VAT. If the GST council decided to include petroleum products under GST, it brings the country into a “uniform tax mechanism”.If the petroleum product is brought under GST, the price will bereduced to half of what is paidby the customer at present. In India, 50 percent of the revenue is earned by States from indirect taxes charged on Petroleum and other related products. Hence, including Petroleum products under GST Bill has increased the fear of loss of revenue for the states. This is one of the reason due to which GST is not levied on Petroleum Products.

Share and Enjoy !

No 16/50, Veerabadhran Street, Nungambakkam, Chennai - 600034. (10 mins walk from ICAI)
Mobile: 9150 938 938 / 9150 939 939
© Tharun's Brainery. All Rights Reserved.
Designed & Developed by : Cosy Creatives