Petrol and Diesel Under GST in India: Tax and Price Implications
India's Goods and Services Tax (GST) has been a significant shift in the country's taxation system, aiming to simplify the existing complex tax structure. However, one confusing aspect has been the status of petrol and diesel in this regime. Currently, they are outside the purview of GST, which brings us to the question: what would be the rate of petrol and diesel under GST?
Current Scenario: VAT and Central Excise Duty
As of now, petrol and diesel in India are considered non-GST supplies, hence they are taxable under the Value Added Tax (VAT) as per the respective State VAT laws. The applicable VAT tax rate for petrol is 29%, and for diesel is 19%, with an additional cess of 1 rupee per litre for both. On top of this, an additional VAT of 3.5 rupees and 1.5 rupees per litre is also applicable for petrol and diesel, respectively.
Predicted Scenario: 28% GST Slab
Most experts predict that petrol and diesel will likely be placed under the 28% GST slab. This is because the products are currently taxed under VAT in States and Union Territories, and it is clear that almost all states will require compensation for the shortfall of funds due to the implementation of GST. This additional compensation will likely be in the form of a Compensation Cess, which may range from 20% to 30%. As a result, you can anticipate a reduction in prices by approximately Rs. 7 to 10 per litre, assuming the price of crude oil remains stable.
Exclusions and Initial Years
It is worth noting that to preserve the revenue collected by states in the initial years of GST implementation, petroleum products such as petrol and diesel have been excluded from the purview of GST. Therefore, no GST will be levied on these fuels. According to the current notification, petrol and diesel will be taxed under GST from a date to be notified by the GST Council.
Conclusion
The introduction of GST has brought about significant changes in the taxation system of India. While petrol and diesel are not currently subject to GST, it is expected that they will be placed under the 28% GST slab soon, subject to certain cesses. These changes will likely result in a reduction in prices, benefiting consumers in the long run.
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