As fuel prices continue to be on the rise, several tax components have a significant role to play in this process. These taxes include excise duty.

The excise duty on petrol and diesel in India increased to 43% and 63.8%, respectively, between March 2020 and February 2021.

Want to know the current excise duty the Indian government levies on these fuels?

Keep reading!

As of 14th March 2020, the excise duty was ₹22.98 per litre on petrol and ₹18.83 per litre on diesel. On 2nd February 2021, the excise duty on diesel increased to ₹31.80 per litre and ₹32.90 per litre on petrol.

The central government’s excise duty constitutes nearly 32.4% of petrol's retail price. This percentage stands at 35.4% for diesel.

Here is a brief overview on what constitutes excise duty on petrol and diesel, respectively, as of July 2021 -

Rise in excise duties by every rupee is expected to produce annual revenue worth approximately ₹13,000 to ₹14,000 crores.

As of 2020-21, the total collection of excise duty on petrol was ₹1,01,598. For diesel, it was around ₹2,33,296.

The government officially stated that the centre levies such excise duty to collect lump-sum revenue. Accordingly, it allocates these funds for development purposes. For example, as per the official statement, the length of highways has increased to 50% over the last 7 years.

Are you wondering what determines the diesel and petrol excise duty in India?

If yes, take a look at the following factors -

Price of Crude Oil

Government increases excise duty on petrol and diesel when the cost of international crude oil is lower. Alternatively, it lowers the excise duty when the crude oil price is higher.

Financial Emergency

Petrol and diesel are outside the purview of GST. Hence, the Centre can raise excise duties during the arrival of any financial emergency. This may include global recession or healthcare crisis.

For example, the Indian Finance Minister currently stated that the Centre is investing in food grains supply to poor individuals. Additionally, it is also investing in healthcare infrastructure amid this current global healthcare crisis. This is creating a financial burden and hence raising fuel taxes is the only solution.

Demand of Fuels

In case of lower demand for fuels, the Centre looks for an avenue to increase its tax collection to meet regular financial obligations. Hence, levying a higher excise duty relieves it from such a scenario and vice versa.

A surge in excise duty on petrol and diesel has increased the central government's tax collection. However, this has impacted fuel prices in India and raised concerns among Indian citizens. Moreover, the Centre is clear about the non-reduction of excise duty. Hence, the fuel price is unlikely to drop in future.