India fuel excise cut 2026: petrol, diesel duty slashed

Why India moved on fuel taxes now

India has cut special additional excise duty on petrol and diesel as global oil prices stayed elevated amid the US and Israel conflict with Iran. The move aims to protect consumers and limit inflation risks at a time when crude markets have turned volatile. Global supply routes, especially around the Strait of Hormuz, have faced disruption fears after attacks that began on February 28. The finance ministry’s late-Thursday order reduced the levy on petrol and removed it on diesel. At the same time, the Centre imposed export taxes on diesel and aviation turbine fuel (ATF) to keep domestic supply adequate and curb windfall gains from exports.

Crude price spike after February 28 strikes

International crude benchmarks rose sharply after February 28, when US and Israeli strikes targeted Iranian facilities, according to the information in the report. Brent crude briefly climbed to about $119 per barrel before easing to around $100. West Texas Intermediate (WTI) rose from about $10 per barrel before the conflict to above $12. The near-closure risk around the Strait of Hormuz, a major global shipping lane, added to market anxiety. With crude trading above $100, fuel-importing economies faced immediate pressure on inflation and trade balances.

India’s exposure: heavy imports and Hormuz reliance

India imports around 88% of its crude oil requirements, making it highly sensitive to global price swings and shipping disruptions. The article notes that around 40% of India’s crude oil imports move through the Strait of Hormuz, and also describes nearly half being transported via that route. Any disruption in the strait can quickly affect domestic fuel availability and logistics. Tehran’s warnings to vessels and insurers pulling back from the route complicated tanker movement. The situation heightened the risk premium in crude prices and raised concern about fuel supply chains.

What the government changed: petrol and diesel excise duty

The finance ministry cut the special excise duty on petrol to Rs 3 per litre from Rs 13. It also cut the duty on diesel to zero from Rs 10 per litre. The move was positioned as consumer protection and an inflation-control step. Reuters reported the decision also comes ahead of elections next month in four Indian states and one federal territory, where pump prices are a sensitive issue. While fuel prices are technically deregulated, state-run oil companies dominate about 90% of the retail network and do not always pass higher crude costs through immediately.

Export duties on diesel and ATF to protect domestic supply

Alongside the excise duty cuts, the government imposed export duties to discourage exports and keep more fuel available at home. The diesel export tax was set at Rs 21.5 per litre. The tax on aviation turbine fuel exports was set at Rs 29.5 per litre. Finance Minister Nirmala Sitharaman said the export tax would ensure adequate availability of these products for domestic consumption. Oil Minister Hardeep Singh Puri also said export tax was levied because international prices of petrol and diesel had risen sharply.

Fiscal impact: revenue loss and partial recovery

Vivek Chaturvedi, chairman of the Central Board of Indirect Taxes and Customs, said India would lose Rs 70 billion per fortnight from the excise cuts. The government expects to recover Rs 15 billion of that through the export taxes on some fuel products. The net hit to government finances was stated as Rs 55 billion per fortnight. Separately, economist Madhavi Arora at Emkay Global estimated the annualised fiscal hit to be nearly Rs 1.55 trillion. The report also said the duty cuts would absorb about 30% to 40% of annual losses of oil marketing companies on auto fuel at current prices.

Oil marketing companies: under-recoveries and price shielding

The measures also reduce pressure on oil marketing companies during periods when retail prices do not rise in line with crude. The report said that at current crude rates, combined daily under-recoveries being absorbed by oil firms stood at Rs 24 billion. The government’s policy approach has often involved either public oil companies absorbing part of the shock or taxes being adjusted to reduce the immediate retail impact. Puri said the government took a large hit on tax revenues to reduce high losses of oil companies, estimated at about Rs 24 per litre for petrol and Rs 30 per litre for diesel at prevailing international prices.

Domestic supply steps: import diversification and LPG allocation

India has diversified crude import sources from 27 to 41 countries and procured Russian crude to fill supply gaps, the report said. The petroleum ministry also indicated that supply conditions were secure and under control, with no shortage reported. In a letter dated Thursday, the petroleum ministry said it would raise the allocation of liquefied petroleum gas (LPG) to commercial and industrial users by 20%, taking total supply to 70% of pre-crisis levels. India had earlier cut gas allocation for non-cooking purposes after the start of the Iran war.

Markets and currency: equities fall, rupee under pressure

The report noted that Indian markets were hit as the conflict continued and energy prices stayed high. The benchmark Sensex was last 1.7% lower, taking losses since the fighting began to about 7.8%. The rupee weakened, with the dollar rising 0.4% to 94.6840 rupees after touching 94.7060 earlier. A strategist note cited uncertainty over US-Iran talks and elevated oil prices as factors weighing on Asian currencies.

Key figures at a glance

What to watch next

Chaturvedi said the government will reassess the special additional excise duty, also referred to as the windfall tax, on diesel and aviation turbine fuel every two weeks. For markets, the key variables remain crude prices, shipping conditions around the Strait of Hormuz, and how long domestic retail prices can be stabilised through tax policy. The government has said it will support oil marketing companies and ensure there is no shortage of petrol, diesel, and jet fuel.