Tamil Nadu cuts VAT on petrol by Rs 3 a litre, leaves diesel unchanged

by Sricharan R 14 Aug 2021


In what may come as some marginal relief to motorists in Tamil Nadu, the state government has reduced Value Added Tax (VAT) on petrol by Rs 3 a litre. This was announced yesterday during the State's Budget presentation by Finance and Human Resource Minister PTR Palanivel Thiagarajan.

The notification, implemented from midnight of August 13, has seen the price of a petrol litre in Chennai reduce by Rs 3 from Rs 102.49 to Rs 99.47 per litre. However, those tanking up on diesel do not benefit from a VAT price cut and will continue to pay Rs 94.39 a litre.

"The government would incur loss of Rs 1,160 crore by reducing the petrol price," Tamil Nadu’s he Finance Minister said. 

Fuel prices steady – no change for 31 straight days
Meanwhile, in what is a welcome relief to motorists and the transportation industry in India, petrol and diesel prices remain unchanged for 31 days on the trot.

Of the four metros, fossil fuel prices are the highest in Mumbai where a litre of petrol costs Rs 107.83 a litre and diesel Rs 97.45. The Delhi motorist pays Rs 5.99 less for a petrol litre (Rs 101.84) and Rs 7.58 for a diesel litre (Rs 89.87) than its Mumbai counterpart.

One of the reasons for the wallet-busting fuel prices is the high level of Central and State taxes. For instance, in Delhi, petrol costs Rs 101.84 a litre of which 32.30% (Rs 32.90) comprises excise duty and 23% (Rs 23.50) is State VAT. Club the two taxes and motorists are paying Rs 56.40 or 55.38% of each petrol litre as tax.

As regards diesel which cost Rs 89.87 a litre in the capital city on July 16 and is the same today, the excise duty component is Rs 31.80 or 35.38%, while VAT is Rs 13.14 or 14.62% of the retail price. Together, the two taxes account for Rs 44.94 or exactly 50% of the price a motorist pays to tank up on diesel.

In FY2021, the Centre got Rs 334,894 crore excise duty from petrol and diesel. The unabated increase in the price of fuels has exacerbated since end-April 2021, after the election process in five States in India concluded.

Motorists had for close to two months before that seen a welcome stoppage in fuel price increases. With prices remaining unchanged for 31 straight days, motorists will be a relieved lot but will also be hoping that taxes are cut and prices reduced.

The monsoon session of Parliament, which commenced from July 19 has concluded a few days ago.  Will fossil fuel prices continue to remain unchanged or will OMCs begin the regular hikes soon?