Duty cuts bring down tax on petrol down to 50%, diesel to 40% in Delhi

With the excise duty and VAT reduction by central government and some state governments respectively, total tax incidence on petrol is down to 50 per cent. Total tax incidence on diesel too is down to 40 per cent after the duty cuts.

The retail price of petrol and diesel are decided with various adding components. These include freight charges, excise duty, variable VAT amounts by different state governments, dealer commission etc. The excise duty is imposed by the central government and VAT is applied by the state governments. Both these two taxes as combined contribute the largest chunk of the retail price for both motor fuels.

Before the excise duty cut was announced on the eve of Diwali, the total tax incidence on petrol in Delhi was 54 per cent with central excise duty at ₹32.90 a litre and VAT of 30 per cent. These tax components made up 54 per cent of the retail price. Now, with the ₹5 reduction in the central government's excise duty on petrol, the total tax incidence is down to 50 per cent.

Similarly, on diesel, the central excise duty of ₹31.80 per litre and 16.75 per cent of VAT plus air ambience charges of ₹250 per kilolitre has witnessed a reduction after the central government announced ₹10 per litre excise duty cut. With the excise duty cut the total tax incidence on diesel has been brought down to 40 per cent from the previous 48 per cent in the national capital.

Delhi is yet to reduce its VAT rates. If it does, the tax on petrol and diesel in the national capital will be further reduced.

Meanwhile petrol and diesel prices remain static for the third consecutive day after the prices of the motor fuels have been reduced across the country owing to the excise duty cut.