At the time of the introduction of GST, petrol and diesel were not included and they remained under the existing system of central excise by the Centre and sales tax by states so that input credit of previous tax paid was not admissible. In the budget session of 2021-22, Union finance minister Nirmala Sitharaman on Monday announced an agriculture cess on petrol and diesel at ₹2.5 /litre and ₹4 /litre respectively but has cushioned it with a commensurate reduction in excise duty of these two fuels.
The government has hiked excise duty on the two fuels by Rs 13-16 per litre prices of petrol and diesel are at all time highs with taxes accounting for 57-62 percent of the cost. To make up for the cess, basic excise duty on petrol has been revised to Rs 1.4 per litre from Rs 2.98 per litre and on diesel from Rs 4.83 per litre to Rs 1.8 per litre. Further, special excise duty has been brought down by Rs 1 per litre each on the two fuels to Rs 11 per litre on petrol and Rs 8 per litre on diesel.
Similar duty changes have also been made for branded petrol and diesel as well as ethanol-blended fuels.
The Central taxes are charged a fixed amount and do not vary according to the rise in the basic price of fuels. But together with VAT charged by states, total taxes work out to 61% of the current petrol and 43% of diesel prices in Delhi, the factor that amps up the impact of hardening crude prices.
Oil minister Dharmendra Pradhan said the tax tweak will allow the oil sector to contribute Rs 50,000 crore annually towards creating agriculture infrastructure such as warehousing and cold storage to invigorate the rural economy and enhance the well-being of farmers.
