India drastically reduced excise tax on gasoline to 0 and 3 rupees per liter.
The Indian government has just decided to cut excise tax on fuel in an effort to stabilize the domestic market amid global oil prices exceeding $100 per barrel.
The Indian Ministry of Finance has announced a significant reduction in excise taxes on petrol and diesel fuel in response to global fuel price volatility. This move comes after energy supplies were threatened by geopolitical conflicts in the Middle East, particularly around the Strait of Hormuz.
Details of the adjustment to the special consumption tax.
According to a decision effective from March 26, the excise tax on gasoline has been reduced to 3 rupees per liter (approximately $0.0318), compared to the previous rate of 13 rupees. Notably, the excise tax on diesel has been reduced to 0 from 10 rupees per liter.
Oil Minister Hardeep Singh Puri said the government is accepting significant revenue losses to support petrochemical companies. These companies are currently recording losses of around 24 rupees per liter for petrol and 30 rupees per liter for diesel amid rising import costs.
Pressure from global oil prices and energy security.
International crude oil prices have surpassed $100 per barrel after the Strait of Hormuz – a crucial shipping route accounting for approximately 40% of India's oil imports – faced the risk of disruption. As the world's third-largest oil importer and consumer, India relies on foreign sources for more than 90% of its needs.
| Item | Old tax (rupee/liter) | New tax (rupee/liter) |
|---|---|---|
| Gasoline | 13 | 3 |
| Diesel | 10 | 0 |
Economist Madhavi Arora from Emkay Global estimates that the budgetary cost of this tax cut could reach 1.55 trillion rupees. This reduction is expected to offset 30% to 40% of the losses incurred by fuel distributors in the domestic market.
Market reaction and additional measures
Financial markets reacted immediately to the announcement. The yield on India's 10-year government bonds rose 7 basis points to 6.95%, its highest level in 20 months. Meanwhile, shares of major companies such as Bharat Petroleum and HPCL surged more than 4% at the open of trading.
Besides reducing domestic taxes, the Indian government also imposed export taxes to ensure domestic supply. Specifically, the export tax on diesel was set at 21.5 rupees/liter and on aviation fuel at 29.5 rupees/liter. Between April 2025 and January 2026, the country exported approximately 14 million tons of gasoline and 23.6 million tons of diesel.
Prime Minister Narendra Modi affirmed that the government has developed contingency plans to ensure the supply of coal for electricity generation and fertilizer for crops, in order to maintain economic stability during a period of volatile energy markets.
