1. Home
  2.  |  
  3. GK Facts  |  

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

Jun 11, 2018 14:51 IST
    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 of 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.

    It is to be noted that during the period of April-January 2017-18, India imported total 184.4 million tonnes of crude oil, which was 213.9 million tonnes in the entire financial year of 2016-17.

    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.

    How National Highways are named in India

    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 simplicity of the calculation, we are calculating the diesel and petrol price charged at the petrol pumps in Delhi.

     

    Petrol Prices

    Diesel Prices

     Crude oil prices in 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 cost 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.

    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 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 higher rate of tax i.e. VAT. (See the list given below)

    different petrol diesel prices indian states

    It is important to mention here that petrol been sold 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 customer is charged for 20 litres of petrol.

    Note: it is worth to mention that the price of crude oil and exchange rate between the dollar and rupee also plays a crucial role in the price determination of the 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.


    Which benefits and rights you are entitled to at Petrol Pumps in India?

    Latest Videos

    Register to get FREE updates

      All Fields Mandatory
    • (Ex:9123456789)
    • Please Select Your Interest
    • Please specify

    • ajax-loader
    • A verifcation code has been sent to
      your mobile number

      Please enter the verification code below