Explained: Factors That Determine Petrol & Diesel Prices in India

Here’s a breakdown of the prices of petrol and diesel in India, into their four main components.

Petrol and diesel prices have four different components. Here’s how it works.

(Photo: iStock)

Petrol and diesel prices have four different components. Here is an explanation of these components.

Price Charged to Dealers

The Oil Marketing Companies, or OMCs as they are called, charge this price to the dealers. IOCL, HPCL & BPCL may charge a marginally different price to the dealers because of various other factors. This price is arrived at based on factors like global crude oil price of the Indian basket, price incurred on freight, exchange rate of US dollar, price incurred on refining etc.

Central Excise Duty

The Central Excise Duty is levied by the central government. This is a fixed amount and not a percentage on the price.  The excise duty on petrol increased from Rs 9.48 per litre to a high of Rs 21.48 per litre by January 2016. In October 2017, the excise duty on petrol was reduced by Rs 2 per litre, the first such reduction by the current BJP government.

On the other hand, the duty on diesel increased by more than 4 times from Rs 3.56 per litre to a high of Rs 17.33 per litre. Like petrol, the duty was reduced by Rs 2 per litre in October 2017 to Rs 15.33 per litre.

Dealer Commission

This is the amount of commission paid by the OMCs to the petrol pump dealers. The dealers manage all their expenses with this commission.

State Specific VAT/Sales Tax

The state governments levy Value Added Tax (VAT) or Sales Tax on the price arrived at by adding dealer price, Central Excise Duty & dealer commission.

This is usually a mix of percentage and a fixed amount. The state VAT on petrol is at least 25 percent in 21 states with the highest in Mumbai at 39.54 percent. The state VAT on diesel is more than 20 percent in 14 states with the highest in Andhra Pradesh at 28.31 percent.

The following infographics explain both the petrol & diesel price breakup in terms of components explained above, including the end price to the consumer.

(Infographic: Factly)

(Infographic: Factly)

(This story was originally published on Factly and has been republished by The Quint with permission.)