Govt Cuts Excise Duty on Petrol, Diesel; Windfall Tax on Fuel Export Back

The government has slashed excise duty on petrol and diesel by ₹10 per litre each, a move aimed at shielding domestic consumers from a surge in global oil prices triggered by the Middle East conflict, at an estimated revenue cost of ₹1.75 lakh crore.

Alongside, the government brought back duties on export of diesel and aviation turbine fuel (ATF).

Special additional excise duty on petrol has been cut from ₹13 a litre to ₹3 and the same on diesel from ₹10 per litre to nil, according to a notification issued late on Thursday.

Alongside, the government imposed an export duty of ₹21.5 per litre on diesel and ₹29.5 per litre on aviation turbine fuel (ATF), reinstating a levy first introduced in July 2022 to curb windfall gains by refiners following Russia's invasion of Ukraine and later withdrawn in December 2024.

However, unlike last time, there is no windfall tax that has been levied on domestic crude oil producers like ONGC.

After the reduction in excise duty, the incidence of excise duty on petrol will be ₹11.9 per litre (₹1.40 basic excise duty, ₹3 special additional excise duty, ₹2.50 agriculture infrastructure and development cess and ₹5 road and infrastructure cess).

On diesel the incidence will be ₹7.80 per litre (₹1.80 basis excise duty, ₹4 agriculture infrastructure and development cess and ₹2 road and infrastructure cess).

Considering 175 billion litre of auto fuel sales annually (115 billion litres of diesel and 60 billion litres of petrol), the impact of the duty cut would be ₹1.75 lakh crore annually.

The excise duty cut follows record losses that oil companies suffered from the surge in international oil prices. Prices of crude oil, the raw material for making petrol and diesel, have surged almost 50% this month as the US and Israel attack on Iran and Tehran's sweeping retaliation disrupts global supply.

Despite oil prices rising above $100 per barrel, retail pump rates had remained on freeze. This had led to oil companies incurring record losses which had even started impacting their working capital.

To ease the pain, the government cut excise duty. The reduction will be adjusted against the ₹24 a litre required increase in petrol and ₹30 per litre hike in diesel rates warranted due to the rise in international oil prices.

Rating agency ICRA, in a note on Thursday, had said if the average crude oil price goes up to $100-105 per barrel, fuel retailers would incur a loss of ₹11 per litre on petrol and ₹14 per litre on diesel, respectively.

International oil prices touched $119 per barrel earlier this month on the intensifying Iran war, before pulling back to around $100 a barrel.

The first signs of stress came when Nayara Energy, the country's largest private fuel retailer, raised petrol price by ₹5 per litre and diesel by ₹3 a litre on Thursday. Petrol at Nayara pumps now costs ₹100.71 a litre and diesel costs ₹91.31 per litre.

State-owned fuel retailers, who control about 90% of the market, continue to keep rates frozen. A litre of normal petrol in Delhi continues to cost ₹94.77 at their outlets, while the same grade diesel comes for ₹87.67 a litre.

Finance Minister Nirmala Sitharaman in a post on X said the reduction in excise duty "will provide protection to consumers from rise in prices".

The government, she said, has always ensured that citizens are protected from vagaries of supply and costs of essential goods.

"Further, duties have been imposed on exports of diesel at ₹21.5 per litre and on ATF at ₹29.5 per litre. This will ensure adequate availability of these products for domestic consumption," she added.

Oil Minister Hardeep Singh Puri said international crude prices have gone through the roof in the last one month from around $70 dollars per barrel to around $122.

"Consequently, petrol and diesel prices for consumers have gone up all over the world. Prices have increased by around 30-50% in Southeast Asian countries, 30% in North American countries, 20% in Europe and 50% in African countries," he said, adding that the government had two choices -- either increase prices drastically or bear the brunt on its finances.

In keeping with the commitment of the last four years since the conflict in Russia-Ukraine started, the government decided to take a hit on its own finances again to safeguard the Indian citizens.

"The government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies (approximately ₹24 per litre for petrol and ₹30 a litre for diesel) at this time of sky high international prices are reduced," he said.

"At the same time, export tax has been levied as international prices of petrol and diesel have skyrocketed and any refinery exporting to foreign nations will have to pay export tax." Puri said the global situation remains in flux, and the government is closely monitoring developments across energy, supply chains, and essential commodities on a real-time basis.

"All necessary steps are being taken to ensure uninterrupted availability of fuel, energy, and other critical supplies for our citizens. We are fully prepared to handle emerging challenges," he said.

India, he said, has consistently demonstrated resilience in the face of global uncertainties, and we will continue to act in a timely, proactive, and coordinated manner.

"Rumours of a lockdown in India are completely false. Let me state this clearly, there is no such proposal under consideration by the Government of India," he said. "In such times, it is important that we remain calm, responsible, and united. Attempts to spread rumours and create panic in such a situation are irresponsible and harmful."