GST on Petrol and Diesel in India: Budget 2026

Published on January 27, 2026 | 3 min read

The Goods and Services Tax (GST) is an indirect tax levied on the manufacturing and sale of goods and services across the country. GST replaced many indirect taxes, such as excise duty, VAT, service tax, etc., to bring uniformity in the tax structure.

However, an important daily-use commodity, petrol and diesel, is still not part of GST. The question is why? Since the GST came into effect on July 1, 2017, the issue of GST on petrol and diesel has been debated.

As the Budget 2026 day arrives, the expectation regarding some developments in GST on petrol and diesel is on. In this article, we will discuss the hurdles of levying GST on petrol and diesel, the benefits of GST on fuels and the government plans.

Why is GST not levied on Petrol and Diesel?

Petrol and diesel are kept outside the GST framework because they contribute a significant portion of revenue for the central and state governments. If both fuels are bought under GST, it will be difficult for state governments to levy their own Value-Added-Tax (VAT), which will hit the revenue.

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Currently, petrol and diesel are taxed under the Excise duty and Value-Added-Tax (VAT). Excise duty is levied by the central government, and VAT is levied by the state governments.

Fuel prices are sensitive, volatile and influenced by various factors, so the government prefer to control the taxes directly. Keeping petrol and diesel out of the GST framework gives them flexibility to adjust prices and protect their revenue.

Benefits of GST on Petrol and Diesel for Consumers

In future, if petrol and diesel come under GST, we should know how it can benefit in various ways.

Uniform Tax

The implementation of GST on petrol and diesel would lead to a uniform tax structure across all states in India. It will reduce the price difference between different states.

Lower Petrol Prices

Including petrol under the GST framework will reduce the overall tax burden, leading to lower petrol prices for end customers.

Boost Economic Growth

Lower petrol prices will reduce the transportation costs of various goods. Due to this, the product prices might decrease, which might lead to a rise in demand and boost the consumption in the economy.

Benefits of GST on Petrol and Diesel for Businesses

Businesses can avail the following benefits:

Better Input Tax Credit

Input Tax Credit (ITC) allows businesses to reduce their tax liability by claiming the tax already paid on business-related purchases. After the inclusion of petrol under GST, businesses could avail an input tax credit, reducing the overall operational costs.

Simplified Compliance

Single uniform tax on petrol and diesel, instead of multiple taxes, reducing the administrative burden.

Government Plans on GST on Petrol and Diesel

In the 53rd GST Council meeting press conference, Finance Minister Nirmala Sitharaman mentioned that the Central government has an intent to tax petrol and diesel under GST. However, this can only be possible when the state government agrees to the proposal.

Section 9 of the CGST Act states that GST on petrol, crude, diesel, motor spirit, natural gas and aviation turbine shell apply from the date the government notifies. As of now, the government has not notified any date for levying GST on petroleum products.

Article 279A of the Indian Constitution mentions that the GST Council shall have the authority to decide the date of implementing GST on petrol in India.

From the discussion between the Centre and states at the GST Council meetings so far, a maximum GST rate of 28% could be levied on petrol, along with cess.

The inclusion of petrol and diesel under the GST framework can help to standardise fuel prices, simplify taxation and benefit consumers. However, the significant loss of revenue for state governments is a big challenge. The government is trying to find a balanced approach that addresses the concerns of state governments while promoting a uniform tax regime.

About Author

Subhasish Mandal

Sub-Editor

finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.

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