GST on Petrol & Diesel — Why Petroleum Products Are Outside GST

Updated: 3 June 2026 | CGST Act, 2017 / Article 279A | Current as of GST Council decisions

Petrol and diesel are NOT under GST. Along with crude oil, aviation turbine fuel (ATF), and natural gas, these five petroleum products are constitutionally excluded from GST under Article 279A(4) of the Constitution of India. They continue to be taxed through Central Excise Duty (by the central government) and State VAT/sales tax (by state governments). No Input Tax Credit (ITC) is available on petrol or diesel purchases — even for businesses.

NO GST

5 petroleum products are outside GST — petrol, diesel, crude oil, ATF, natural gas
These can be brought under GST only with a unanimous GST Council recommendation. States have consistently opposed inclusion due to revenue concerns.

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No ITC on petrol/diesel for any business. Even GST-registered businesses — transport companies, manufacturers, retailers — cannot claim Input Tax Credit on petrol or diesel. This is a permanent feature of the current structure, not a temporary restriction.

Why Petrol and Diesel Are Not Under GST

The exclusion of petroleum products from GST is rooted in constitutional design and political economy:

CONSTITUTIONAL REASON

Article 279A(4) of the Constitution

The 101st Constitutional Amendment, which introduced GST, explicitly listed crude oil, natural gas, petrol, diesel, and ATF as petroleum products that would be brought under GST only from a date to be recommended by the GST Council. No such date has been recommended to date.

REVENUE REASON

States' Revenue Dependence

State VAT on petrol and diesel contributes 15–25% of many states' own tax revenues. States like Maharashtra, Karnataka, and Delhi collect thousands of crores annually from petrol VAT. Subsuming this into GST would shift the revenue to a shared pool, reducing state autonomy over a major revenue stream.

CENTRAL EXCISE

Central Government Excise Revenue

The central government collected over ₹3.8 lakh crore in petroleum excise duties in recent years. Replacing this with GST at standard rates would require compensating the centre through higher cesses — complicating the rate structure. The central excise on petrol was ₹19.90/litre and on diesel ₹15.80/litre as of mid-2026.

Current Tax Structure on Petroleum Products

Product	Current Tax Regime	GST Applicable?	ITC Available?
Petrol (MS)	Central Excise ₹19.90/L + State VAT (~25–35%)	No	No
Diesel (HSD)	Central Excise ₹15.80/L + State VAT (~16–25%)	No	No
Aviation Turbine Fuel (ATF)	Central Excise 11% + State VAT (varies)	No	No
Crude Oil	Central Excise + Royalty + State levies	No	No
Natural Gas	Central Excise + State VAT	No	No
LPG (domestic cooking gas)	GST 5% (subsidised cylinders: NIL)	Yes — 5%	Businesses: Yes
CNG / PNG	GST 14% (City gas distribution)	Yes — 14%	Businesses: Yes

Note: LPG and CNG/PNG are NOT among the five excluded petroleum products and are therefore covered under GST.

ITC Impact on Businesses — Who Gets Hurt Most

The absence of ITC on petrol and diesel creates cascading tax costs across several industries:

Sector	Fuel Used	ITC Status	Cost Impact
Road freight / trucking companies	Diesel (HSD)	No ITC	Diesel is 40-50% of operating cost — full cost passed to shippers
Airlines	ATF	No ITC	ATF is 30-40% of ticket cost — raises fares for passengers
Manufacturing (diesel generators)	Diesel (HSD)	No ITC	Power cost cascades into product prices
Fishing industry	Diesel (HSD)	No ITC	Raises seafood prices; partial subsidy through subsidised diesel
Agricultural pumps	Diesel (HSD)	No ITC	No GST registration typically; direct cost to farmer

GST Council stance: The GST Council has discussed petroleum inclusion in multiple meetings. Kerala High Court in 2021 directed the GST Council to decide on bringing petroleum under GST. The Council acknowledged the issue but deferred any decision citing lack of consensus among states. As of 2026, inclusion remains deferred with no set timeline.

Frequently Asked Questions

Why is petrol not included under GST?

Petrol, diesel, crude oil, aviation turbine fuel (ATF), and natural gas are excluded from GST under Article 279A(4) of the Constitution of India. These five petroleum products can be brought under GST only if the GST Council recommends it with a unanimous vote. States strongly oppose inclusion because petroleum taxes (primarily VAT/sales tax on petrol and diesel) are a major source of revenue — contributing 15-25% of total state tax revenues. No state wants to give up this revenue to a shared GST pool. Despite GST Council meetings repeatedly raising the topic, inclusion remains indefinitely deferred.

What are the current taxes on petrol in India?

Petrol prices in India have three main tax components: (1) Central Excise Duty — currently ₹19.90 per litre levied by the central government; (2) State VAT — varies by state, typically 25-35% of the base price. Delhi charges approximately 30% VAT (~₹17 per litre at current prices); (3) Dealer commission — approximately ₹3.85 per litre. The total tax component in a ₹100 petrol price is typically ₹50-60 depending on the state. This cascading of central excise + state VAT is precisely what GST was meant to replace — but petroleum remains outside GST.

Can a business claim ITC (Input Tax Credit) on diesel or petrol?

No. Since petrol and diesel are not covered under GST, there is no GST charged on them, which means there is no Input Tax Credit available. A transport company buying diesel for trucks cannot claim ITC. A manufacturing company with diesel generators cannot claim ITC on diesel. Even if a business registers for GST, fuel costs remain a hard cost with no credit offset. This is a significant burden on logistics, freight, and manufacturing sectors. The absence of ITC on diesel is often cited as the biggest inflationary factor in India's goods transportation cost.

Does GST apply on aviation tickets (ATF is excluded from GST)?

Aviation turbine fuel (ATF) is one of the five petroleum products excluded from GST. ATF is subject to central excise duty and state VAT. However, the service of air travel (the airline ticket itself) IS covered under GST — economy class tickets are taxed at 5% GST and business class at 12% GST. So while the airline's fuel cost has no GST/ITC, the ticket sold to passengers carries GST. Airlines cannot offset the VAT paid on ATF against the GST collected on tickets — this cascading cost is passed on to passengers through higher ticket prices.

What would happen to petrol prices if petrol is brought under GST?

If petrol and diesel are brought under GST, the unified tax rate would need to be set by the GST Council. At the highest GST slab of 28%, total taxes would be far lower than current levels (central excise ~₹20/L + state VAT ~₹15-20/L = ₹35-40/L in effective taxes vs 28% of ~₹50 base price = ~₹14/L under GST). This could theoretically reduce petrol prices by ₹15-25 per litre. However, states would lose massive VAT revenue. An additional cess (like on tobacco or cars) would likely be imposed to compensate states, potentially reducing the price benefit to consumers. The GST Council has not agreed on the compensation mechanism.

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