The authorities cannot agree on the GST on petrol in India since the introduction of the Goods and Services Tax (GST) in July 2017. Though GST has replaced multiple indirect taxes for most goods and services, the upper reaches of petrol and other petroleum products have been left to the current mechanism.

Dual Tax System:

This system makes it such that the central and state governments separately tax the prices of petrol, resulting in disparities between states.

Is GST Applicable on Petrol in India?

No, GST is now not being imposed on petrol.

Petrol is taxed through:

The Central excise duty, paid to the Union Government
A value-added tax (VAT) levied by individual state governments

Further, VAT rates are different from one state to another, and the prices of petrol are also different.

The inclusion of petroleum products in the schedule of GST means that the GST Council is required to issue its notices. So far, no such notifications have been issued.

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Why is Petrol Still Not in GST?

A decision to have petrol under GST is vested in the GST Council, which is composed of delegates from all central regions.

There are big reasons why petrol has not been taken within the GST structure:

High revenue contribution

Fuel taxes mean a large portion of the Centre and states' revenues and need to be looked at in the long-term regarding price increases and market developments.

State revenue issues

There is a grey area that states may shed substantial revenues if petrol taxation is covered within the gambit of VAT.

Consensus

But any consensus has not been externally accomplished by states.

Therefore, the financial and political aspects further allow petrol to slip out of the realms of GST.

What could be the GST Rate on Petrol?

Under the new regime, if petrol is covered by the GST, it is pegged to come under the highest slab of 28%, and likely some cess too.

At 28%, experts predicted the cost of petrol may reduce in terms of current taxes, depending on cess provisions and the revenue-sharing mechanism described within GST.

It will finally depend on the final impact:

Base price
GST rate as applicable
Any additional cess
Compensation to the states
Current taxes on Petrol

Current Taxes on Petrol

So far, the price of petrol contains:

The base price
Duty
Commission to the dealer
The VAT levied by a state

This present system gives rise to a fiscal cascading effect in cases where tax-on-tax is imposed.

Possible Benefits of Bringing Petrol Under One GST

Adding GST to the price of petrol will bring the following benefits:

1. Uniform pricing across India

The price of fuel becomes the same in all the states with the GST implementation.

2. Simplification of Tax Structure

Multiple tax structures could be eliminated and replaced by a single tax regime.

3. Removal of Cascading Effect

GST will rid us of tax cascading.

4. Input Tax Credits for Businesses

The system would allow businesses to claim input tax credit (ITC) on their fuel expenses. This would help reduce the operational costs, particularly in the logistics and transport sectors.

5. Improve Transparency

Consumers will then have a clear tax component presented in the invoice.

Possible GST on Petrol Headache

Loss of Revenue for States
Need for a Compensation Mechanism
Political Consensus among GST Council Members

Until they are resolved, petrol will continue to be taxed under the existing excise and VAT structure.

Consumer Impact

As for the consumer, GST on petrol could:

Possibly reduce prices (depending on rate and cess)
Make pricing uniform between states
Increase transparency

However, the actual price impact cannot be gauged unless a final rate decision is made.

Conclusion

The proposition of proposing GST on petrol in India is not just a legal possibility but also a financial and political sensitive issue. Inclusive incorporation under GST for simplification of taxation and leveling of prices would still be no less a threat to the states that could mean a steep shortfall in their revenues from fuel taxes. Therefore, at least until the GST Council decision is unanimous, the structure of excise duty and value-added tax on petrol will coexist.

Frequently Asked Questions (FAQs)

Is petrol included under GST in India?

No, petrol is not currently under GST and is currently taxed through excise duty and state VAT.

What authority decides on moving petrol under GST?

The GST Council will decide on the inclusion of petroleum products under GST.

What is the current GST on petrol?

There is no GST rate on petrol as it is not in the tax structure.

Will petrol become cheaper under GST?

It could become cheaper if taxed at 28% without high additional cess, but final pricing depends on government decisions.

Why are petrol prices different in each state?

Because each state applies its own VAT rate on petrol.

Can businesses claim input tax credit on petrol?

Currently, no ITC is available on petrol under GST since it is outside the GST framework.

Are diesel and natural gas within GST?

Like petrol, diesel is also outside GST. Other petroleum products may be treated differently depending on notification status.

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