Are petrol, diesel and other fuels covered under GST in India? No. Five petroleum products, namely petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel (ATF), remain outside the GST framework. They are taxed under the pre-GST dual system of Central Excise Duty (Union) and VAT (State). Article 279A(5) of the Constitution requires the GST Council to recommend a date for their inclusion, which has not happened as of August 2026.
Fuel taxation in India operates on a parallel track. While GST unified over 17 indirect taxes into one framework from July 1, 2017, five petroleum products were deliberately kept outside. The result is that businesses pay excise duty and state VAT on fuel purchases but cannot claim input tax credit (ITC), making fuel a pure cost rather than a recoverable tax. This guide covers the legal framework, current tax structure, the March 2026 excise duty cut, ITC implications, and what a potential shift to GST would mean.
Table of Contents
One. Why Fuel Is Outside GST: The Constitutional Framework
Two. The Five Excluded Petroleum Products
Three. Current Tax Structure on Petrol and Diesel
Four. Fuel Price Breakup: Delhi and Mumbai Examples
Five. March 2026 Excise Duty Cut and Export Tax
Six. ITC on Petrol and Diesel: Rules for Businesses
Seven. LPG Under GST, CNG Outside It
Eight. What If Fuel Comes Under GST: Hypothetical Analysis
Nine. GST Council Position on Fuel Inclusion
Ten. Frequently Asked Questions
Key Takeaways
Petrol (motor spirit) and high-speed diesel are among five petroleum products constitutionally excluded from GST under Section 9(2) of the CGST Act, 2017. They continue to face Central Excise Duty plus State VAT, a dual-tax system that predates GST.
The March 27, 2026 excise duty cut reduced petrol excise from Rs 13 to Rs 3 per litre and brought diesel excise to zero. This was a direct response to the West Asia crisis and potential risks to supply via the Strait of Hormuz affecting global oil supply.
Businesses cannot claim ITC on petrol and diesel because these products are outside GST. This makes fuel an embedded cost that increases the effective price of goods and services across the supply chain.
States resist bringing fuel under GST because petroleum VAT is a major revenue source, often accounting for 25-30% of their own tax collections. The GST Council has acknowledged this deadlock but has not set a timeline for inclusion.
LPG is already under GST (5% for domestic LPG, 18% for commercial LPG), demonstrating that not all petroleum derivatives are excluded. CNG and piped natural gas are natural gas, so they stay outside GST.
Why Fuel Is Outside GST: The Constitutional Framework
The exclusion of petroleum products from GST is not an administrative decision. It is written into the Constitution through the 101st Amendment Act, 2016, which created the GST framework.
Article 279A(5) of the Constitution specifically states that the GST Council shall recommend the date on which GST shall be levied on petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel. Until the Council makes this recommendation, these products remain outside the GST net.
Section 9(2) of the CGST Act, 2017 operationalizes this exclusion. It states that the central tax (CGST) on the supply of petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendation of the Council.
The corresponding provision in each State GST Act (Section 9(2) of the respective SGST Acts) mirrors this exclusion for the state component. This means no CGST, SGST, or IGST applies to these five products.
Why a constitutional exclusion? The framers of the GST law recognized that petroleum products generate massive revenue for both the Centre and States. An abrupt shift to GST would have created revenue uncertainty that could have jeopardized the entire GST rollout. The compromise was to keep these products outside GST temporarily, with a constitutional mechanism (GST Council recommendation) for future inclusion.
The Five Excluded Petroleum Products
The following five products are specifically excluded from GST under the constitutional and statutory framework:
Tax Rate Chart
Petroleum Products Excluded from GST
Section 9(2) of CGST Act, 2017
Petroleum Crude
Taxed under Central Excise + State VAT
Motor Spirit (Petrol)
Excise Rs 3/litre + State VAT (post March 2026)
High-Speed Diesel
Excise Rs 0/litre + State VAT (post March 2026)
Natural Gas
Taxed under State VAT; varies by state
Aviation Turbine Fuel (ATF)
Central Excise + State VAT on ATF sales
Source: Constitution (101st Amendment) Act, 2016; Section 9(2) of CGST Act, 2017
Other petroleum derivatives, including LPG, naphtha, kerosene (PDS), lubricants, and petrochemical feedstock, falls under GST at applicable rates. The exclusion is narrow and product-specific, not a blanket exemption for the petroleum sector.
Pump dealers who sell lubricants alongside fuel live with both systems at once; our guide on income tax for petrol pump owners covers dealer margin as business income, tax audit, 194Q TDS and GST on lubricants.
Current Tax Structure on Petrol and Diesel
Since petrol and diesel sit outside GST, they are taxed under the pre-GST regime that combines central and state levies:
Central Excise Duty is a specific duty (fixed amount per litre) levied by the Union government under the Central Excise Act, 1944. After the March 27, 2026 cut, excise duty on petrol stands at Rs 3 per litre and on diesel at Rs 0 per litre (effectively zero).
State VAT is an ad valorem tax (percentage of the base price plus excise) levied by each state government. VAT rates on petrol range from approximately 15% to 40% across states. Because VAT is calculated on a base that includes the excise duty, a cut in excise duty also marginally reduces the VAT collected.
Dealer Commission is a fixed amount per litre paid to the retail outlet owner. This is not a tax but forms part of the retail price.
Tax Rate Chart
Tax Components on Petrol and Diesel (Post March 2026 Cut)
Central Excise + State VAT Structure
Petrol: Central Excise Duty
Reduced from Rs 13 on March 27, 2026
Petrol: State VAT (varies)
Ad valorem, applied on base + excise
Diesel: Central Excise Duty
Reduced to zero on March 27, 2026
Diesel: State VAT (varies)
Ad valorem, applied on base price
Dealer Commission
Not a tax; retail margin
Source: Ministry of Petroleum and Natural Gas; respective state VAT notifications
The ad valorem nature of state VAT is significant. When global crude oil prices rise, the base price of petrol and diesel increases, and because VAT is a percentage, the absolute VAT amount also rises automatically. This gives states a windfall during high oil price periods, which is one reason they resist the shift to GST (where rates would be fixed by the GST Council rather than unilaterally by each state).
Fuel Price Breakup: Delhi and Mumbai Examples
The retail price of petrol and diesel varies across cities because each state sets its own VAT. Pump prices are revised by the oil marketing companies, so check the current price on the IOCL, BPCL or HPCL website rather than relying on a fixed figure.
Delhi: VAT is 19.40% on petrol and 16.75% on diesel, applied on the depot price plus central excise and dealer commission.
Mumbai: Maharashtra levies VAT plus an additional per-litre tax on motor fuels, so Mumbai pump prices are usually several rupees per litre higher than Delhi for both petrol and diesel.
The gap between Delhi and Mumbai prices illustrates why the Centre cannot unilaterally bring fuel under GST. Each state has calibrated its VAT based on its own revenue needs. A uniform GST rate would eliminate this state-level flexibility.
March 2026 Excise Duty Cut and Export Tax
On March 27, 2026, the Government of India implemented one of the largest excise duty cuts in recent years:
- Petrol excise duty: reduced from Rs 13 per litre to Rs 3 per litre (Rs 10 cut)
- Diesel excise duty: reduced to Rs 0 per litre (effectively eliminated)
Trigger: West Asia crisis. The cut was a direct response to escalating tensions in West Asia, specifically the US-Israel conflict with Iran and the risk of shipping delays through the Strait of Hormuz. Approximately 20% of global oil passes through the Strait of Hormuz, and any blockade or restriction would cause a sharp spike in crude oil prices. The excise duty cut was a pre-emptive measure to shield Indian consumers from potential price surges.
Export duty on diesel and ATF. Alongside the excise duty cut, the government imposed export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel, to keep domestic supply adequate and curb windfall gains from exports. This echoed a similar export levy imposed in July 2022.
Purpose. The government said the cut was meant to protect consumers from a rise in prices and to partly offset the under-recoveries of public sector oil marketing companies, so the cut did not necessarily pass through fully to pump prices.
ITC on Petrol and Diesel: Rules for Businesses
The inability to claim ITC on fuel is one of the most frequently asked questions from business owners. The answer involves two separate legal provisions:
First: fuel is outside GST, so no GST is charged. Since petrol and diesel are not subject to GST, there is no CGST, SGST, or IGST component in the fuel invoice. You pay excise duty and VAT, neither of which qualifies for ITC under the GST framework. This is the primary reason ITC is unavailable.
Second: no exception for manufacturers. Even a manufacturer that uses diesel, ATF or natural gas as a fuel or raw material gets no GST credit on it, because no GST is charged. The excise duty and VAT paid are a cost. Section 17(5) of the CGST Act does not list fuel, so if fuel is ever brought under GST, credit would follow the normal business-use rules.
Related point for refiners and fuel sellers. A business whose output is petrol, diesel or ATF makes a supply that is outside GST, so GST credit on its common inputs must be apportioned and reversed to that extent under Section 17(2) and Rule 42.
Tax Rate Chart
ITC Availability on Petrol and Diesel
Current Rules Under CGST Act, 2017
Business vehicles (cars, trucks, delivery)
Fuel outside GST; no GST charged
Generator fuel (DG sets)
Fuel outside GST; no GST charged
Employee transport fuel
Fuel outside GST; no GST charged
Manufacturing input (refinery, chemical)
Fuel outside GST; no GST charged
Source: Section 9(2) of CGST Act, 2017
Impact on logistics costs. The inability to claim ITC on diesel is a significant cost burden for the transport and logistics industry. Fuel constitutes 40-60% of the operating cost for trucking companies. Since this cost is fully embedded (no ITC recovery), it cascades into the price of every good transported, contributing to inflation across the supply chain.
LPG Under GST, CNG Outside It
Not all petroleum-derived fuels are excluded from GST. LPG shows that the exclusion is limited to five specific products:
Tax Rate Chart
GST Rates on LPG
Petroleum Products Already Under GST
Domestic LPG (14.2 kg cylinder)
HSN 2711 19 00; subsidized supply
Commercial LPG (19 kg cylinder)
HSN 2711 19 00; non-subsidized
Auto LPG (for vehicles)
HSN 2711 19 00; 5% applies only to household and NDEC supply
Source: GST Rate Schedule; Notification No. 1/2017-CT(R) as amended
CNG and piped natural gas are natural gas, which is one of the five excluded products, so they carry central excise duty and state VAT, not GST.
ITC on LPG. Since LPG is under GST, businesses can claim ITC on LPG purchases, subject to the standard eligibility conditions. A restaurant charging 18% with ITC can claim ITC on the 18% GST paid on commercial LPG (a restaurant paying 5% without ITC cannot). A CNG-powered fleet operator gets no GST credit on CNG, because no GST is charged on it.
If you run a gas agency, our GST and income tax guide for LPG distributors covers the 5% and 18% split, cylinder deposits, e-way bills and the tax audit limit.
What If Fuel Comes Under GST: Hypothetical Analysis
The GST Council has the constitutional authority to bring petrol and diesel under GST at any time. If this happens, the impact would depend entirely on the GST rate chosen:
Scenario 1: 40% GST (highest rate since September 22, 2025, no extra levy). At 40% GST on a base price of Rs 60 per litre, the tax component would be Rs 24. Whether this is lower than today's excise plus VAT depends on the state and on the excise rate in force, and states would lose the freedom to set VAT.
Scenario 2: GST plus a separate levy. The Centre or states could keep an additional levy outside GST on top of the GST rate to protect revenue. If calibrated to maintain current revenue, retail prices may not change much, but businesses would gain ITC on the GST portion, reducing cascading costs.
Scenario 3: Special rate for petroleum. The GST Council could recommend a special rate for petroleum products to maintain revenue neutrality. This would still bring ITC availability and more uniform pricing across states.
Key benefits of GST inclusion regardless of rate:
- Uniform pricing across all states (eliminating the Delhi vs Mumbai price gap)
- ITC availability for businesses, reducing cascading tax costs
- Transparent single-tax invoice replacing the current excise + VAT dual structure
- Simplified compliance for oil marketing companies operating across states
Key risks:
- Revenue loss for states that currently levy high VAT on petroleum
- Political resistance from states with high petroleum VAT dependency
- Need for a compensation formula to protect state finances during transition
GST Council Position on Fuel Inclusion
The GST Council has discussed fuel inclusion in multiple meetings without reaching consensus:
53rd GST Council Meeting (June 22, 2024): Finance Minister Nirmala Sitharaman stated that the Centre is in favour of bringing petroleum products under GST, but states must agree. She noted that the decision requires consensus because petroleum VAT is a critical revenue source for states, and unilateral action is not feasible under the cooperative federalism framework.
Earlier discussions: The issue was also taken up at the 45th GST Council meeting (September 2021), where the Council decided it was not the time to include petroleum products, with states citing revenue concerns.
Current outlook: As of August 2026, there is no indication that the GST Council will recommend fuel inclusion in the near term. The March 2026 excise duty cut (reducing excise to near-zero levels) has, paradoxically, made the case for GST inclusion weaker in the short term because the central tax component is already minimal. The primary tax burden now rests with state VAT, and states have no incentive to surrender this to a GST regime where rates would be set by the Council rather than unilaterally.
This guide is based on the Constitution (101st Amendment) Act 2016, CGST Act 2017 (as amended), Central Excise Act 1944, state VAT legislations, GST Council meeting minutes, and petroleum pricing notifications from the Ministry of Petroleum and Natural Gas. Tax rates, excise duty levels, and fuel prices are subject to change by the Government of India and respective state governments. Consult a Chartered Accountant for advice specific to your business situation.
