Is the Price of Petrol Cutting Through your Pockets? Why Is Petrol So Costly in India?

Is the Price of Petrol Cutting Through your Pockets? Why Is Petrol So Costly in India?

Here are some calculations:

1 barrel of crude = 159 ltr
International price of Crude oil (landed) = $79.93 per barrel

Crude oil = Rs. 35.89 per ltr

Entry Tax + Refinery processing + OMC margin + Freight Cost @ 9.5% = Rs. 3.45 per lt

Basic Cost of Petrol = Rs. 39.34 per ltr

This is the basic cost of Petrol before any taxes are added on to it.

Now comes the part of the taxes.

In India, the Central and the State Governments apply different taxes. There are also different tax structures for different states (that’s why the price varies from state to state).

The Central Govt charges Excise Duty + Road cess which is approx 49.5% on the basic cost of petrol.

Central Govt Taxes @ 49.5% = Rs. 19.48 Ltr

Cost of Petrol to dealers = Rs. 58.82 per ltr

The petrol pump dealers get a commission of around 6%.

Commission to Petrol Pump Dealers @ 6% = Rs. 3.63 per ltr

Cost of Petrol before VAT = Rs. 62.45 per ltr

Now, comes the State taxes. The States charge a VAT for sale of petrol in the state along with pollution CESS and in some case additional CESS, like the Maharashtra Govt charges a drought CESS on petrol along with various other surcharges.

In the city of Mumbai, the Maharashtra govt charges a total of 38.8% (approx.) tax on the dealer price or a whopping 61.5% on the basic price of petrol.

State Tax @ 38.8% = Rs. 24.24 per ltr

Cost of Petrol in Mumbai = Rs. 86.72 (For further details, check here)

For easier understanding (The Price of Petrol in Mumbai per ltr)

Basic Cost of Petrol = Rs. 39.34
Dealer’s Commission = Rs. 3.63
Central Govt Tax = Rs. 19.48 (49.5% of basic cost)
MH State Govt Tax = Rs. 24.24 (61.6% of basic cost)

Total Tax on Petrol = Rs. 43.72

The Government of India (Center + State) charges the user a total of 111% tax of petrol.

Furthermore, it is important to note that the Tax is not a fixed amount but a percentage of the basic cost. So as the basic price increases, the amount of tax collected also increases and the Govts simply keep adding more and more revenue to their treasury at the expense of the common man.

A rise in the crude oil barrel price means more money gets transferred from the common man’s pocket into the deep pockets of the Govt, both State and the Center.

Yes, the Govt representatives claim that this tax is used for the betterment of the state and hence people should not complain.

Whether you should complain or not is up to you, however it would be imperative to ask the question as to why is Petrol, which is classified as an essential commodity under section 2 of the 1955 Act, is being taxed at 111% thus more than doubling the price for the common man.

This post was first published by Darshan Mondkar on his Facebook Timeline.

Disclaimer: The figures are approximate and subject to change as the crude oil price and the $/INR rate keep fluctuating on almost a daily basis. However, this post should give you a general idea of where and how the fuel money is being distributed. The calculation for Diesel will be different as the tax rates are different.

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