Petrol and diesel are NOT under GST. Along with crude oil, aviation turbine fuel (ATF) and natural gas, these five products are constitutionally kept outside GST under Article 279A(5) of the Constitution. They are still taxed through central excise duty + state VAT, so no Input Tax Credit is available on fuel — even for a GST-registered business. This was not changed by the GST 2.0 reform of 22 September 2025.
Current Tax Structure on Petroleum & Gas
The five excluded fuels attract central excise plus state VAT; the related gases (LPG, CNG, PNG) are inside GST and follow the two-slab structure. Check the current schedule on the HSN/SAC rate finder before invoicing.
| Product | Tax Regime | Under GST? | ITC? |
|---|---|---|---|
| Petrol (motor spirit) | Central excise + State VAT | No | No |
| Diesel (high-speed diesel) | Central excise + State VAT | No | No |
| Aviation Turbine Fuel (ATF) | Central excise + State VAT | No | No |
| Crude oil | Central excise + royalty + State levies | No | No |
| Natural gas (as a fuel) | Central excise + State VAT | No | No |
| LPG — domestic cooking | GST | 5% | Yes* |
| LPG — commercial / industrial | GST | 18% | Yes |
| CNG — used in vehicles | GST | 5% | Yes |
| PNG / natural gas via CGD network | GST | 18% | Yes |
* Subsidised domestic cylinders are effectively cheaper; household users are not registered so ITC is not relevant. LPG/CNG/PNG (HSN 2711) stay inside GST — they are not among the five excluded fuels. Confirm the live rate on gst.gov.in.
Because petrol and diesel carry no GST, there is no GST to claim as Input Tax Credit. A transport firm buying diesel for its trucks, or a factory running diesel generators, absorbs the full fuel cost with no credit offset. This is a permanent feature of the current structure, not a temporary block.
Why Petrol & Diesel Are Kept Out of GST
The exclusion is built into the Constitution and held in place by state revenue politics — not by any ordinary GST notification.
- Constitutional design. The 101st Constitutional Amendment lists crude oil, motor spirit (petrol), high-speed diesel, ATF and natural gas as products on which GST will be levied only from a date the GST Council recommends — and no such date has been fixed.
- State revenue dependence. State VAT on petrol and diesel funds a large share of many states' own tax revenue, so states resist folding it into a shared GST pool.
- Central excise revenue. The Centre collects a large sum in fuel excise; replacing it with GST would force higher cesses to keep revenue neutral.
Bringing petrol and diesel under GST needs a GST Council recommendation, not a Budget announcement. Until the Centre and states agree on a revenue-sharing mechanism, expect fuel to stay outside GST and the excise-plus-VAT structure to continue.
ITC Impact — Sectors That Absorb the Cost
With no Input Tax Credit on petrol or diesel, fuel tax cascades into the price of goods and services across fuel-heavy sectors.
| Sector | Fuel | ITC | Cost Impact |
|---|---|---|---|
| Road freight / trucking | Diesel | No | Diesel is 40-50% of running cost — passed to shippers |
| Airlines | ATF | No | ATF is a big share of ticket cost — raises fares |
| Manufacturing (DG sets) | Diesel | No | Captive-power cost cascades into product prices |
| Cab & logistics fleets | Petrol / Diesel | No | Fuel tax embedded in per-km rates |
| Agriculture (diesel pumps) | Diesel | No | Direct cost to farmers — usually unregistered |
The service you sell may still carry GST — an airline charges 5% GST on economy tickets even though ATF has no ITC. See our note on blocked and unavailable credits.
Petrol/diesel carry no GST, so there is simply nothing to claim. That is different from a blocked credit under Section 17(5), where GST is charged but the law disallows the credit. Both raise cost, but for different reasons.
Running a logistics, transport or manufacturing business? Get your GST & ITC position reviewed.
Talk to a GST Expert →What If Petrol Came Under GST?
If petrol and diesel were brought under GST, the Council would set a slab (and likely an additional cess to protect state revenue). At a headline GST rate, the pure tax on fuel could be lower than today's excise-plus-VAT — but a compensation cess would probably narrow the consumer benefit.
Potential upside
- A single, transparent tax replaces excise + VAT
- ITC could become available to registered businesses
- Fuel prices could fall if no heavy cess is added
- Uniform price signals across states
Why it stalls
- States lose a major independent revenue source
- A compensation cess would offset much of the cut
- Needs Council consensus, not just a Budget line
- No agreed revenue-sharing mechanism yet
GST Council Stance in 2026
The GST Council has discussed petroleum inclusion several times and acknowledged the issue, but has repeatedly deferred any decision citing a lack of consensus among states. As of 2026, fuel remains outside GST with no notified timeline. The GST 2.0 rationalisation of September 2025 restructured goods/services rates but did not touch the constitutional exclusion of these five fuels.
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