Centre could lose Rs 1.1 lakh crore amid petrol, diesel excise duty cut: Report
Oil marketing companies, as per Union ministry, are currently losing Rs 24 per litre on petrol and Rs 30 per litre on diesel, as retail price has not been increased post the huge increase in oil price
The central government is likely to suffer a net revenue loss of at least Rs 1.1 lakh crore in FY27 in the wake of her decision to cut excise duty on petrol and diesel, which is aimed at shielding consumers from surging global crude prices, as per the State Bank of India (SBI) report.
The report noted that the oil marketing companies (OMCs), as per the oil ministry, are currently losing Rs 24 per litre on petrol and Rs 30 per litre on diesel, as the retail price of diesel and petrol has not been increased post the huge increase in oil price.
Thus, the government has reduced the special excise duty on petrol and diesel by Rs 10 per litre, reducing the overall excise duty on petrol from Rs 21.9 per litre to Rs 11.9 per litre and from Rs 17.8 per litre to Rs 7.8 per litre on diesel to provide relief to the OMCs amidst the rising crude prices.
It highlighted that the government has imposed a windfall tax of Rs 21.5 per litre on diesel exports. Furthermore, a special additional excise duty on aviation turbine fuel (ATF) of Rs 50 per litre has been imposed, which, however, with effective exemptions comes down to Rs 29.5 per litre. This move by the government will help in ensuring increased availability for the domestic market.
The report added that states earned a total of Rs 3.02 lakh crore from sales tax/VAT on POL products in FY25, with an increase in the price of crude; states are likely to earn higher VAT revenue from oil at unchanged VAT rates.
Furthermore, even if we consider the oil consumption by states of FY26 (estimated from FY25 share) and the new excise duty rates of the centre, the states are expected to earn higher VAT by Rs 25,000 crore, benefiting from the higher crude oil price, with Karnataka benefiting the most. In March 2026, the states have already benefited by Rs 2,500 crore incrementally owing to higher oil prices, with Rs 2,400 crore increase before the excise duty cut.
This is definitely going to be higher once we consider the higher consumption of petrol & diesel by states. Thus, states can act to cut VAT rates and pass on the benefit to consumers, it added.
