Will petrol and diesel come under GST?

Posted on: Apr 11, 2023 | 3 mins | Written by: HDFC ERGO Team

Will petrol and diesel come under GST?

Since the Goods and Services Tax has been introduced in India, the inclusion of petrol under GST has remained contentious. It has been debated lately that the GST council may impose GST on petrol and diesel. There is already an 18% GST on a bike and car insurance policy.

GST on Petrol:

Petrol and diesel, so far, are not subsumed under GST (Goods and Services Tax). Currently, fuels like petrol, diesel, natural gas, and ATF are covered under Vat (Value-Added Tax), central excise duty, and central sales tax. Every state has a different rate of petrol and diesel. So, the centre imposes central excise duty and sales tax on the base rate of petrol while the dealer's income on petrol comes under VAT imposed by the state. The discussions between the Centre and states have led to the assumption that a maximum of 28% GST may be levied on petrol.

However, this does not impact the premium for your vehicles. So, your third party car insurance plan, comprehensive car insurance policy or bike insurance policies do not get affected by this change.

FM Sitharaman's Response:

On 11th February 2023, the Union Finance Minister, Mrs Nirmala Sitharaman, held a post-Union Budget conference in New Delhi after an interactive session with the members of the PHD Chamber of Commerce and Industry, PHDCCI. She pointed towards bringing in petrol, diesel, ATF (Aviation Turbine Fuel), natural gas, and selected petroleum products under the umbrella of GST. The anticipation regarding GST on petrol might turn true, as hinted by FM Sitharaman. Although she has been heard clarifying that the GST on petrol will only be imposed once states agree to it. Only after the state fixes a tax rate for crude oil can the centre carve out a GST taxation policy for crude oil and select petroleum products.

A few months ago, in November 2022, the Petroleum and Natural Gas Minister, Mr Hardeep Singh Puri, mentioned that the Central government had been prepared to bring petrol as well as diesel under the GST system. Finance Minister Nirmala Sitharaman further added that the GST council already has provisions to include crude oil under the GST system. Since crude oil has a different price in every state due to differences in VAT, local taxes, and transportation charges, GST on petrol is so far not a unanimous decision. Sitharaman states that if the GST council is able to incorporate fuel prices under it, then VAT and other taxes will be ruled out, and a uniform price for crude oil will be followed pan-India.

You must know that Section 9 of the CGST Act clearly mentions that GST on crude petrol and diesel, natural gas, and ATF shall be applicable from a date decided by the government. Currently, the following petroleum products are used as raw materials and attract GST as follows:

Particulars	GST rate
Petroleum Gases in liquified form	5%
LPG, liquified petroleum gas, supplied to non-domestic, exempted category (NDEC) customers by companies such as IOC, HP or BP	5%
Petroleum Gases in gaseous state	18%
Petroleum Oils And Oils Obtained From Bituminous Minerals, Other Than Crude, with the weight of 70% or more of Petroleum Oils	18%
Raw petroleum coke for node making used in the Aluminium Industry as per Standard Is 17049	18%
Petroleum jelly	18%

Arguments in Favour of Bringing Petrol Under GST:

Bringing petrol under GST is said to be in favour of the consumer. With the average person spending up to 40% of the petrol prices on the levied taxes, petrol under GST will surely be easier on the pocket, as the highest tax outflow would be 40%, which can be broken down as 20% each of SGST or CGST.

Take a look at the table below, which shows that the current petrol prices would probably be lesser in the post-GST system.

Present Day under excise and VAT		Probable future under GST
Details	Amount	Details	Amount
i. Fuel cost (Petrol) (Including freight)	INR 57.35	i. Fuel cost (Petrol) (Including freight)	INR 57.35
ii. Excise duty (19.90/litre)	INR 19.9	ii. Dealer commission per litre	INR 3.87
iii. Dealer’s commission per litre	INR 3.87	iii. Total value (i + ii)	INR 61.22
iv. Total value (i + ii + iii)	INR 81.12	GST (assumed and taken highest slab of 28% on iii)	INR 17.14
VAT (Delhi) @ 19.4% on iv	INR 15.74
Retail price of petrol (RSP)	INR 96.86	Retail price of petrol (RSP)	INR 78.36

Arguments Against Bringing Petrol Under GST:

The talks of bringing petrol and diesel under GST have been going on for long, and the decision not been taken yet is itself an indication that it is indeed a tricky situation. The prices of these fuels will drop if they are brought under the ambit of the goods and service tax. A number of states are against this move as they generate a large amount of income in the form of revenue when they tax petroleum products.

Even when the highest of 28% GST is levied, states will earn nothing but a loss. The VAT on petrol and diesel levied in India is one of the highest in the world. States like Kerala have strongly opposed the inclusion of petrol under GST. Kerala FM mentioned1 (in the year 2020) that the step could lead to an annual loss of INR 8,000 crores.

Conclusion:

2023 completes 6 years of Goods and Services Tax (GST) in India. So far, most of the goods and services have been brought under a uniform taxation system by the GST council, including bikes as well as a CAR INSURANCE policy. Incorporating crude oil, natural gas, ATF, and select petroleum products under GST is still a debatable matter. Finance Minister Nirmala Sitharaman has hinted about GST on crude oil in her recent interviews.

However, until there is an agreement with states, the imposition of GST on crude oil will remain stagnant. As known, GST has 4 tax slabs (5%, 12%, 18%, and 28%). So, it is quite clear that even if GST on crude oil is agreed upon, the maximum tax on crude oil will be 28%. It will help eliminate differences in state taxes on crude and also bring uniform taxation for this essential commodity. Further discussions on the topic would help clarify the decision of the state and centre on the matter.

As a car, bike or any other vehicle owner, the inclusion of fuels under GST can greatly affect your everyday budget. Till the time there is a final decision, the ongoing prices will remain. Whatever decision is made will be applicable to all citizens alike. Another vehicle-related policy that you need to be aware of is that a motor vehicle owner has to have the cover of a motor insurance policy. You have the option to choose between mandatory third party car insurance, or comprehensive car insurance. Make sure your insurance policy best suits your insurance needs as well as your budget.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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