Union Budget 2025: Petrol And Diesel To Come Under GST?

Ahead of the Union Budget 2025, the debate on taxation of petrol and diesel in India has intensified. Currently, these fuels are exempt from the Goods and Services Tax (GST) and are instead subject to a mixture of Value Added Tax (VAT), central excise duty, and central sales tax, which are imposed at varying rates by individual states. This system results in a noticeable disparity in fuel prices across different regions. For instance, as of 1st May 2024, petrol is priced at ₹94.72 per liter and diesel at ₹87.62 per liter in Delhi, with these figures fluctuating from state to state based on local tax rates.

The possibility of integrating petrol and diesel into the GST framework has been a topic of discussion since the GST's implementation in 2017. Finance Minister Nirmala Sitharaman has voiced the government's intention to make this transition, aiming to unify the taxation structure under the GST. However, despite these intentions, as we move into 2024, no such change has taken effect. The primary obstacle remains the challenge of reaching a consensus among the states, many of which express concerns over the potential loss of revenue that might accompany such a shift.

Government's Stance of the GST Council

Within the GST Council, there's a clear lack of immediate plans to bring crucial fuels like petrol, diesel, aviation turbine fuel (ATF), and natural gas under the GST umbrella. The Council, which plays a pivotal role in these decisions, has not recommended their inclusion. This is despite the central government's support for the move, which it believes could simplify fuel taxation and minimize the price variations seen across the country. However, the power to make this decision lies with the states, which are yet to be persuaded of the benefits.

The variance in fuel prices among states is a direct result of the current tax regime. The composition of these prices includes the cost payable to dealers, added dealer commissions, and the taxes levied by both central and state governments. This structure leads to a complex web of taxation, contributing to the significant price differences observed in the retail market.

Prospects for Change

The debate over including petrol and diesel in the GST framework is ongoing, with significant implications for both consumers and states. While the central government advocates for this inclusion, citing the potential for more uniform pricing and reduced costs for consumers, the final decision lies with the states. Their willingness to adjust their revenue systems and reach a consensus will be critical in determining whether petrol and diesel can be brought under the GST. Until such an agreement is reached, these fuels will continue to be taxed under the existing system of VAT and central excise duties, maintaining the status quo of varying fuel prices across India.