How much Tax do you pay on Diesel & Petrol in India?

In 2020, the excise duty has increased at least 10 times since 2014. The excise duty on diesel is now Rs 31.83 and on petrol Rs 32.98 in 2020. Worth to mention that tax on petrol was Rs 9.48 per litre and on diesel, it was Rs3.56 a litre when the Modi government took office in 2014.
Jul 15, 2020 13:31 IST
How Diesel and Petrol taxed in India
How Diesel and Petrol taxed in India

There is a debate in every corner of the country that why the prices of diesel and petrol in India are higher as compared to neighbouring country.  In this article, we are trying to explain the whole mechanism of diesel and petrol price determination. Let's try to find out the answer to this question;

As we all know, India produces only 20% oil of its requirement and rest is imported from other countries. Saudi Arabia has traditionally been India's top oil importing source, but during the period of April-January 2017-18, Iraq has snatched this place. In this financial year, India has purchased 20% (38.9 million tons) of total crude oil requirement from Iraq while in the same period just 30.9 million tons imported from Saudi Arabia.

Now let’s try to understand the full mechanism of oil price determination in India;

It is necessary to mention here that the value of crude oil is calculated according to the dollar per barrel and a barrel of crude oil is equal to 159 litres.

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Let us calculate how the prices of diesel and petrol are calculated;

Let's assume that today the price of crude oil in the international market is $ 71 per barrel, if ocean freight of $ 1.5 per barrel is added to it, then total cost becomes $ 72.5 barrels.

It is assumed that the exchange rate between the dollar and Indian rupee is; 1$= Rs. 68 and it is constant; then, the price of 159 liters of crude oil will be Rs. 4930 and the price of one litre crude oil will be 31 rupees.

Let us now understand through a chart that how the prices of diesel and petrol will be determined at this rate. For the simplicity of the calculation, we are calculating the diesel and petrol price charged at the petrol pumps in Delhi.

How is the price of petrol and diesel determined?

                                           Particular

Petrol Prices

Diesel Prices

 Crude oil prices in the international market (with ocean freight)

 $ 72.5 per barrel

 Or

 Rs. 4930 per barrel

 $ 72.5 per barrel

 Or

 Rs. 4930 per barrel

 1 Barrel is equal to   

 159 litre

 159 litre

  Crude oil cost per litre

 31 per litre

 31 per litre

 Basic Cost Calculation  

 

 

 Refinery processing, entry cost, landing cost, other operational costs along with margins

 2.62 per litre

 5.91 per litre

  Freight Cost, Transportation Cost and margin of Oil Marketing Companies

 3.31 per litre

 2.87 per litre

  Basic cost of fuel after refining cost

 36.93 per litre

 39.78 per litre

  Excise Duty + Road Cess charged by the Central Government

 19.48 per litre

 15.33 per litre

  The price taken from the dealer before the VAT is charged

 56.41 per litre

 55.11 per litre

  Dealer Retail Price Calculation - Location Delhi

 

 

  Commission of Petrol Pump Dealers

 3.62 per litre

 2.52 per litre

  Fuel cost before VAT is charged

 60.03 per litre

 57.63 per litre

  27% VAT(different in every state) is  charged on the Petrol and 16.75% on the diesel + 25paise as pollution cess with surcharges

 16.21 per litre

 9.91 per litre

 Final Retail Price at the  petrol pumps in Delhi

 76.24 per litre

 67.54 per litre

So in the above table, you read that per liter cost of crude oil was only Rs.31 and when the oil is finally purchased by the consumers, its per litre cost became more than double.

The maximum contributors in the petrol tax were excise duty and Road Cess of Rs.19.48 imposed by the central government and VAT of Rs.16.21 per litre imposed by the state government of Delhi.

tax-on-petrol-in-India-2020

If the consumer pays Rs. 76.24 for a liter petrol, then he pays Rs. 35.69 per liter as tax, which is more than the value of one litre crude oil i.e. Rs. 31 per litre.

If the Central Government and the State Governments reduce their taxes by 50% then the prices of petrol and diesel in each state can be reduced up to Rs. 20 per litre.

It is important to mention here that the rates of VAT on diesel and petrol vary from state to state, that is the reason that the prices of diesel and petrol are different in every state of India. The prices of diesel and petrol are higher in those states where the state government charges a higher rate of tax i.e. VAT. (See the list given below)

petrol-prices-states

It is important to mention here that petrol been sold in India by adding 10% ethanol since December 2017. The cost of one litre of ethanol is around 41 rupees while it is sold at the rate of Rs.76.24 a litre to the consumers.

If a customer purchases 20 litre of petrol it means that he will get just 18 litre petrol and 2 litre ethanol while the customer is charged for 20 litres of petrol.

Note: The total incidence of excise duty on diesel has risen to Rs 31.83 and on petrol, it has risen to Rs 32.98 per litre in May 2020. 

Worth to mention that tax on petrol was Rs 9.48 per litre and on diesel it was Rs3.56 a litre when the Modi government took office in 2014.

Note: it is worth mentioning that the price of crude oil and the exchange rate between the dollar and rupee also plays a crucial role in the price determination of diesel and petrol. But for the simplicity of the readers, we considered them constant.

It is expected that after reading this article, you must have understood that why there is an increase in the prices of diesel and petrol in the country and how much money you are paying as the tax to the central and states governments of the country.


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