Why Petrol and Diesel Are Outside GST

Search for the rate of GST on petrol and you will find plenty of numbers, but the honest answer is that there is none. Petrol, diesel, crude oil, natural gas and aviation turbine fuel sit inside the constitutional scope of GST, yet GST does not apply to them until the GST Council recommends a date, and no date has been notified. This guide explains why GST on petrol and diesel is still on hold, what you pay instead, why businesses get no input tax credit on fuel, and which other petroleum products are already taxed under GST.

Is there GST on petrol and diesel?

No. When you fill up a car, the bill does not carry CGST and SGST on the fuel. That is not because petrol is exempt in the GST sense, with a 0% rate in a schedule. It is because the GST levy on five petroleum products has never been switched on. The five are:

• petroleum crude;
• high speed diesel;
• motor spirit, commonly known as petrol;
• natural gas;
• aviation turbine fuel (ATF).

Alcohol for human consumption is the other big item outside GST, but for a different reason: it is excluded by the definition of GST itself, not parked pending a date. That difference is covered in our post on GST on alcohol.

Why petroleum is outside GST: the legal position

When the Constitution was amended in 2016 to bring in GST, the five petroleum products were deliberately kept within the definition of goods on which GST can be levied. But two provisions hold the levy back:

So the switch exists, and only the Council can ask for it to be flipped. Until it does, the Constitution leaves the Centre's power to levy excise duty on these products, and the states' power to levy sales tax or VAT on them, in place. The backstory of how GST arrived on 1 July 2017 with this carve-out is in our post on when GST was implemented in India.

What taxes apply to petrol and diesel instead

Two layers of tax sit inside the pump price, one from each level of government:

• Central excise duty. The Centre levies excise on petrol and diesel, made up of basic excise duty plus additional duties and cesses. It is usually a fixed amount per litre rather than a percentage, and the Centre changes it by notification from time to time.
• State VAT or sales tax. Each state sets its own levy. Some charge a percentage, some a fixed amount per litre, some a percentage with a minimum, and some add a cess on top. This is the main reason the same litre of petrol costs noticeably more in one state than in the next.

Under GST the tax on a supply is split into CGST and SGST within a state, or charged as IGST across states, with one rate for the whole country. None of that machinery applies to fuel. If the split is unfamiliar, see the difference between CGST, SGST and IGST.

How a litre of petrol is priced

Oil marketing companies and the Petroleum Planning and Analysis Cell publish price build-ups, and the numbers change often, so rather than quote figures that will go stale, here is the structure in words. Working from the refinery to the nozzle:

1. Price charged to the dealer. The oil company's price for the fuel, which reflects international product prices, refining, freight to the depot and the company's own margin.
2. Plus central excise duty. The per-litre excise and cesses levied by the Centre.
3. Plus the dealer's commission. What the petrol pump earns per litre for selling the fuel.
4. Plus state VAT. Calculated in most states on a value that already includes the excise duty and the dealer's commission.

Step 4 is worth noticing. Because VAT is charged on a price that already contains central excise, part of the state tax is a tax on a tax. Removing that kind of cascading was one of the main promises of GST, and fuel is the largest place where it survives. Taken together, excise and VAT make up a large share of what a motorist pays at the pump, which is why changes in either one move retail prices visibly.

Why businesses cannot claim ITC on fuel

Input tax credit works only for GST paid. Since a fuel bill contains no GST on the petrol or diesel, there is nothing to claim, and the excise and VAT inside the price cannot be set off against GST output tax. For a transporter, a logistics firm, an airline or a factory running diesel generators, that tax is simply a cost that ends up in the price of whatever they sell — on which GST is then charged again.

It runs the other way too. A refinery or gas producer making supplies that are outside GST cannot take credit for the GST it pays on inputs, services and capital goods used for those supplies, so that GST also gets stuck in the price of fuel. And a business that sells both GST and non-GST items, such as a fuel station that also sells lubricants, has to reverse credit on common inputs in proportion to its non-GST sales under Rules 42 and 43.

This is a different thing from a blocked credit. Section 17(5) lists purchases on which GST is charged but credit is denied, such as most motor vehicles and food for staff; see blocked credits under Section 17(5). Fuel never gets that far, because there is no GST on it in the first place. The general conditions for credit are in our input tax credit rules guide.

What would change if petrol came under GST

If the Council recommended a date, the change would be larger than a new rate on the pump bill.

• One national rate. Petrol and diesel would carry the same GST rate in every state, ending the state-by-state price gaps that come from different VAT rates.
• A credit chain for businesses. A registered business buying diesel for its trucks or generators could, subject to the usual conditions and any blocking rules, claim the GST on fuel as credit. That would remove fuel tax from the cost of a very wide range of goods and services.
• Credit for producers. Refiners and gas producers could claim the GST on their own inputs, removing that hidden layer too.
• Less cascading. The tax-on-tax of VAT charged over excise would go.

The obstacles are about revenue and control. Fuel taxes are among the largest single sources of tax revenue for both the Centre and the states, and they are easy to collect from a small number of oil companies. Under GST the rate would be set jointly in the Council rather than by each state for itself, and states in particular would lose one of the few large taxes they still control on their own. The highest GST rate available today is the 40% de-merit rate introduced with GST 2.0; whether any rate inside the current structure could replace today's combined excise and VAT without a large revenue loss is exactly the question the Centre and states have not settled.

Petroleum products that are under GST

Search terms like GST on petroleum often mix up the five excluded products with the much longer list of petroleum products that are fully inside GST. Products refined from crude, other than petrol, diesel and ATF, are generally taxed under GST at the rate notified for their HSN code. Common examples:

Rates for these items are set in the GST Council's rate notifications and some moved in the 22 September 2025 rationalisation, so look up the current rate for the exact HSN code rather than relying on an older list. Our HSN code list with GST rates is a starting point.

GST at the fuel station

A petrol pump is a mixed business for GST. The fuel it sells is outside GST, but almost everything else on the forecourt is not:

• Lubricants, engine oil and coolants sold over the counter are taxable goods.
• Services such as car washes, and goods sold in an attached convenience store, are taxable at their own rates.
• Services the station buys, such as rent, maintenance and security, carry GST, and credit on them has to be apportioned between taxable and non-GST sales.

A dealer selling only petrol and diesel is not required to register for GST, because the law does not require registration from someone dealing exclusively in goods that are not liable to tax. Once the station also makes taxable supplies, though, the value of its fuel sales counts towards aggregate turnover for the registration threshold, and that is usually crossed quickly. A registered station reports its fuel sales as non-GST outward supplies in GSTR-3B.

For a business paying a fuel station bill that includes taxable items, the GST portion should carry the station's GSTIN. Before claiming credit on it, it is worth confirming that the GSTIN is active and belongs to the station named on the bill. Our GSTIN verification API returns the status and legal name in seconds, one at a time or in bulk for finance teams processing many such bills.

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