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 and CNG: Already Under GST
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 Strait of Hormuz disruptions 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 and CNG are already under GST (5% for domestic LPG, 18% for commercial LPG, 5% for CNG), demonstrating that not all petroleum derivatives are excluded.
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
Every other petroleum derivative, including LPG, CNG, 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.
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 rate. Here is the approximate breakup as of August 2026 (post the March 2026 excise duty cut):
Delhi: Petrol at Rs 103.97 per litre
- Base price (refinery gate price + freight): approximately Rs 60-62 per litre
- Central excise duty: Rs 3 per litre
- Dealer commission: approximately Rs 3.70 per litre
- Delhi VAT (19.40%): applied on the above components
- Total retail price: Rs 103.97 per litre
Delhi: Diesel at Rs 86.67 per litre
- Base price: approximately Rs 60-62 per litre
- Central excise duty: Rs 0 per litre
- Dealer commission: approximately Rs 2.60 per litre
- Delhi VAT (16.75%): applied on the above components
- Total retail price: Rs 86.67 per litre
Mumbai: Petrol at Rs 109.98 per litre
Mumbai prices are higher because Maharashtra levies both a higher VAT rate and an additional surcharge on motor fuels. Maharashtra's effective VAT on petrol exceeds 25%, pushing the Mumbai retail price significantly above Delhi.
Mumbai: Diesel at Rs 94.14 per litre
Maharashtra's diesel VAT is also among the highest in India, contributing to the Rs 7+ per litre premium over Delhi diesel prices.
The gap between Delhi and Mumbai prices illustrates why the Centre cannot unilaterally bring fuel under GST. Each state has calibrated its VAT rate based on its own revenue needs and fiscal strategy. 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 disruption to shipping 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 tax on petrol and diesel. Alongside the excise duty cut, the government imposed an export tax on refined petrol and diesel. The objective was to ensure that Indian refineries prioritize domestic supply rather than exporting to take advantage of higher international prices. This measure echoed a similar export duty imposed in July 2022 during the Russia-Ukraine conflict.
Revenue impact. The excise duty cut reduces Central government revenue from petroleum by an estimated Rs 50,000-60,000 crore annually. However, the government calculated that the economic benefit of lower fuel prices (reduced logistics costs, lower inflation, consumption support) outweighs the direct revenue loss.
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: even if fuel enters GST, Section 17(5) applies. Section 17(5)(a) of the CGST Act blocks ITC on motor vehicles and conveyances, and Section 17(5)(b) blocks ITC on goods and services for personal consumption. While fuel itself is not explicitly listed in Section 17(5), the blocked credit provisions would likely apply to fuel used for running motor vehicles, consistent with the overall policy of denying ITC on personal/employee transport.
The exception: fuel as manufacturing input. ITC is available when petrol, diesel, or other petroleum products are used as an input for further manufacture of taxable goods. The classic example is petroleum refining: a refinery that purchases crude oil (outside GST) and produces naphtha or lubricants (inside GST) can claim ITC on the inputs used in manufacturing GST-taxable outputs. This exception is narrowly construed and does not extend to fuel consumed for transportation or generator use.
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; blocked under Sec 17(5)
Manufacturing input (refinery, chemical)
Used as input for taxable output
Source: Section 17(5) of CGST Act, 2017; CBIC Circular No. 184/16/2022-GST
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 and CNG: Already Under GST
Not all petroleum-derived fuels are excluded from GST. LPG and CNG demonstrate that the exclusion is limited to five specific products:
Tax Rate Chart
GST Rates on LPG and CNG
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
CNG (Compressed Natural Gas)
HSN 2711 21 00; auto and industrial use
Auto LPG (for vehicles)
HSN 2711 19 00; used as motor fuel
Source: GST Rate Schedule; Notification No. 1/2017-CT(R) as amended
The fact that LPG and CNG are under GST while petrol, diesel, and natural gas are not creates an inconsistency. CNG is derived from natural gas (which is excluded), yet CNG itself is taxable under GST. This anomaly exists because CNG was not part of the original five-product exclusion list in the Constitution (101st Amendment) Act.
ITC on LPG and CNG. Since these products are under GST, businesses can claim ITC on LPG and CNG purchases, subject to the standard eligibility conditions. A restaurant using commercial LPG can claim ITC on the 18% GST paid. A CNG-powered fleet operator can claim ITC on CNG purchases at 5%.
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: 28% GST (highest slab, no cess). At 28% GST on a base price of Rs 60 per litre, the tax component would be Rs 16.80. Compare this to the current combined tax (excise + VAT) of Rs 35-45 per litre in most states. Retail prices could fall by Rs 15-25 per litre. However, central and state revenue would drop sharply, making this scenario politically unlikely without a compensation mechanism.
Scenario 2: 28% GST plus cess. The GST Council could impose a compensation cess on top of the 28% rate to protect state revenue. If the cess is calibrated to maintain current revenue levels, retail prices may not change significantly, but businesses would gain ITC, reducing cascading costs across the supply chain.
Scenario 3: Special rate outside the slab structure. The GST Council could create a special category for petroleum products with a rate higher than 28% (for example, 40% or 50%) to maintain revenue neutrality. This would still benefit the economy through ITC availability and price uniformity 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 has been raised in the 45th, 47th, and 48th GST Council meetings as well. Each time, a majority of states have opposed inclusion, citing revenue concerns. States like Kerala, Tamil Nadu, Karnataka, and Maharashtra, which levy high petroleum VAT, have been particularly vocal in their opposition.
Supreme Court observations: In 2022, the Supreme Court of India, while hearing a petition on fuel taxation, observed that bringing petroleum under GST is a policy decision of the GST Council and not a matter for judicial intervention. The Court declined to direct the Council to act on the matter.
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.
Frequently Asked Questions
Q: Is GST applicable on petrol and diesel in India?
No. Petrol (motor spirit) and high-speed diesel are among five petroleum products excluded from GST under Section 9(2) of the CGST Act, 2017. They continue to be taxed under the pre-GST regime of Central Excise Duty plus State VAT. The GST Council must recommend a date for their inclusion under Article 279A(5) of the Constitution.
Q: Why is petrol not under GST?
State governments depend heavily on petroleum VAT revenue, which can exceed 25-30% of their own tax collections. The Constitution (101st Amendment) Act specifically kept these products outside GST until the GST Council recommends otherwise. States have consistently resisted inclusion due to this revenue dependency.
Q: Can businesses claim ITC on petrol and diesel purchases?
No. Since petrol and diesel are outside the GST framework, no GST is charged and therefore no ITC is available. Even if these products were brought under GST, Section 17(5) of the CGST Act blocks ITC on motor vehicle fuel except when used as an input for manufacture of taxable goods, such as in petroleum refining.
Q: What taxes are currently levied on petrol and diesel?
Petrol and diesel face a dual tax structure: Central Excise Duty (levied by the Union government) and State VAT (levied by each state as an ad valorem percentage). After the March 2026 excise cut, excise duty on petrol is Rs 3 per litre and on diesel is zero. State VAT rates vary from 15% to 40% depending on the state.
Q: Is LPG under GST?
Yes. Unlike petrol and diesel, LPG is covered under GST. Domestic LPG cylinders attract 5% GST, while commercial LPG attracts 18% GST. CNG (compressed natural gas) also falls under GST at 5%.
Q: What was the March 2026 excise duty cut on fuel?
On March 27, 2026, the Government of India slashed central excise duty on petrol from Rs 13 to Rs 3 per litre and reduced diesel excise duty to zero. This was a response to the West Asia crisis involving US-Israel conflict with Iran and potential disruptions to the Strait of Hormuz, which threatened global oil supply chains.
Q: What will happen to fuel prices if petrol comes under GST?
If petrol and diesel are brought under GST at 28% (the highest slab), retail prices could fall significantly because the current combined incidence of excise plus VAT often exceeds 40-50% of the base price. However, the exact impact depends on the GST rate chosen, whether cess is added, and how states are compensated for revenue loss.
Q: Is natural gas under GST?
No. Natural gas is one of the five excluded petroleum products alongside crude oil, petrol, diesel, and aviation turbine fuel. It continues to be taxed under state VAT. However, CNG (compressed natural gas, a processed derivative) is under GST at 5%.
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.
