Union Budget 2022: Decoding tax on unblended petrol and diesel

Petrol and diesel prices across the country has been stable for a while after a halt in daily price revision. However, things will change in a few months when the Centre's proposal to hike price kick in in the form of excise duty on unblended fuel. This will result in a straight ₹2 hike per litre for diesel.

During her presentation of the Union Budget 2022, Finance Minister Nirmala Sitharaman proposed ₹2 per litre excise duty on unblended fuel from October 1. "Blending of fuel is a priority of this Government. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of ₹2 per litre from the 1st day of October 2022," Sitharaman said in her Budget speech in the Lok Sabha.

The reason why petrol will escape this excise duty is that currently 8.5 percent ethanol is blended or mixed in petrol to reduce oil import. Blended petrol is presently available in nearly 80 percent of the country. For the rest of the areas, there will be a push from the oil companies to procure ethanol to mix with petrol. Though, according to industry experts, the next few months may not be enough to cover the entire country.

Last year, the Centre announced a target to achieve 20 percent ethanol-blending with petrol to 2025 to reduce dependency on costly oil imports. It also aims to achieve 10 per cent ethanol blending by the end of this year.

Tarun Bajaj, Revenue Secretary, said, "We have also collected data on what is not being blended and this is something to push the petroleum companies to ensure that they do the blending. Our desire is not to collect the tax because it would be very minimal. The desire is the blending happens and to an extent, it benefits the country."

Currently, places like the North East and Jammu & Kashmir and few more places in the South and Rajasthan do not have a supply of ethanol-blended petrol. While it may be possible to supply blended petrol in Rajasthan and southern parts of the country by October, North East may have to wait longer and pay premium for petrol too.

Diesel, on the other hand, will so no reprieve from the imminent hike. Blending of diesel in India is still at an experimental level. Instead of ethanol, extracts from non-edible oilseeds are used as experiment to blend in diesel.