The Centre on Friday halved excise duty on petrol and diesel, slashing levies by Rs 10 per litre each, as global crude prices surged past the $100-per-barrel mark amid the escalating West Asia conflict, triggering one of the sharpest fuel tax corrections in recent years.
The move brings total central taxes on petrol down from Rs 21.90 per litre to Rs 11.90, and on diesel from Rs 17.80 to Rs 7.80 (see chart). Immediate beneficiaries of the move to cut the special additional excise duty are state-run oil marketing companies (OMCs), which started making losses in marketing auto fuels since Brent crude crossed the 80/barrel mark early this month. However, the tax cuts are not sufficient to fully offset the OMCs’ losses.
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According to industry estimates, before the latest tax cut, the gross marketing margins were negative for both diesel and petrol at approximately Rs 45 and Rs 35, respectively, which resulted in the company level blended number to be around Rs 24-25/litre. With the tax reduction, the impact has been reduced by Rs 4-5/litre.
Fiscal Trade-off
The Central Board of Indirect Taxes and Customs (CBIC) chairman said in an inter-ministerial briefing that the “lowering of excise duties on petrol and diesel” will lead to a Rs 7,000 crore revenue loss in just a fortnight, underscoring the scale of the fiscal intervention. On an annualised basis, the revenue loss is estimated at Rs 1.5-1.6 lakh crore.
The duty cut follows a steep escalation in crude prices, with India’s crude basket rising from $69.01 per barrel in February to $123.15 per barrel as of March 24. Brent crude had surged from $68.13 per barrel before the first US-Israel strikes on Iran to over $100 within days, briefly touching $119 earlier this month.
At $100 per barrel, global oil markets are widely considered to have crossed a “red line,” significantly straining fuel pricing systems across economies.
India, which imports nearly 90% of its crude requirements, has been particularly exposed. A sustained $1 per barrel increase in crude prices raises the country’s import bill by about Rs 16,000 crore annually.
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Oil Minister Hardeep Singh Puri said global crude prices have “gone through the roof” in the last month, rising from around $70 per barrel to $122. “Consequently, petrol and diesel prices for consumers have gone up all over the world,” he said.
“The government had two choices — either increase prices drastically or bear the brunt on its finances,” Puri said. “The government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies… are reduced.”
The latest excise revision sharply reduces the tax component embedded in retail fuel prices. On petrol, the tax structure now comprises Rs 1.4 basic excise duty, Rs 3 special additional excise duty (down from Rs 13), Rs 2.5 agriculture infrastructure and development cess, and Rs 5 road and infrastructure cess.
On diesel, the revised structure includes Rs 1.8 basic excise duty, zero special additional excise duty (down from Rs 10), Rs 4 agriculture infrastructure cess, and Rs 2 road and infrastructure cess.
The cuts mark a significant reversal in the government’s fuel taxation trajectory since 2020. Central excise duty on petrol had peaked at `32.98 per litre in May 2020 and remained above Rs 27 till late 2021. Diesel duty had similarly stood at `31.83 per litre in 2020 before successive reductions.
Even as recently as November 2025, excise duty stood at Rs 21.9 per litre for petrol and Rs 17.8 for diesel. The latest reduction of Rs 10 per litre is the steepest single adjustment in recent years.
The move is aimed at absorbing a portion of the sharp increase in global oil prices without passing the burden entirely to consumers. Industry estimates suggest that petrol prices would need to rise by Rs 24 per litre and diesel by Rs 30 per litre to fully reflect current crude levels.
OMC Strain
Prashant Vashisht, senior vice president and co-group head at Icra, said, “The reduction in marketing losses would be Rs 10 per litre for each of the products,” adding that the “tentative revenue loss due to reduction in excise duties is Rs 1.5-1.6 lakh crore on an annualised basis.”
According to a recent Emkay research report, with Brent crude hovering at $100-102 per barrel, India’s fuel pricing system is under acute strain. OMCs are absorbing annualised losses of nearly Rs 3 lakh crore at prevailing crude price levels, while retail fuel prices would need to rise by as much as 43% for diesel and 19% for petrol to restore normal margins.
An Elara Capital report said: “OMCs are the hardest hit amid high-crude prices. Higher gross refining margins (GRMs) can partly offset retail margin collapse and rising LPG loss. At current Brent of $100/barrel, earnings could drop sharply 90-190% in the absence of retail price hike, tax cut, or higher LPG subsidy. Among OMCs, HPCL and BPCL are most exposed due to their higher retail volume relative to refining capacity.”
Harshraj Aggarwal, lead analyst, institutional equities at YES Securities, said, “For every `1 per litre cut in central excise duty on petrol or diesel costs the Centre roughly Rs 1,500 crore per year,” indicating a fiscal impact of around `1.3 lakh crore annually.
Hardik Shah, director at CareEdge Ratings, said the surge in crude prices has widened retail losses beyond refining gains. “Indian OMCs had a break-even on their refining and retailing operations at a crude oil price of around $90 per barrel… with the latest cut in excise duty, the break-even is expected to shift to around $106 per barrel if retail prices remain constant,” he said.
Fuel consumption data highlights the scale of the challenge. Petrol consumption stood at 38,807 thousand metric tonne (TMT) in FY26, while diesel consumption reached 85,985 TMT, according to PPAC.
The stress is already visible in fuel markets. Nayara Energy raised petrol prices by `5 per litre and diesel by `3 per litre, with petrol now retailing at Rs 100.71 and diesel at Rs 91.31 per litre at its outlets.
In contrast, state-run OMCs, which account for nearly 90% of fuel retail sales, have kept prices unchanged. In Delhi, petrol continues to be priced at Rs 94.77 per litre and diesel at Rs 87.67.
TOPICSPetrol PriceThis article was first uploaded on March twenty-eight, twenty twenty-six, at six minutes past one in the night.