New GST Rates Coming Into Effect From Today 22 September: Why Are Petrol And Diesel Still Not Included In GST? Explained

New Delhi: The new Goods and Services Tax (GST) regime with sweeping tax reforms are coming into effect today. The GST 2.0 which was approved by the GST Council earlier this month will now be segregated into a simplified two-tier tax system replacing the previous four-slab system.

This will lead to rate revision of over 375 items that will directly impact household budgets across the country.

Under the new structure, the majority of goods and services will now come under 5 percent and 18 percent tax bracket. A higher rate of 40 per cent will apply exclusively to ultra-luxury items, sin goods, and other demerit products.

(Also Read: GST Cut Benefits Not Passed On To You? Here’s The Direct GST Helpline Number)

Meanwhile Alcohol used for human consumption, natural gas, petrol and its products are among the items not covered under the ambit of GST.

Why are petrol and diesel still not included in GST?

With combined taxes of more than 100%, petrol and diesel are two of the most heavily taxed goods in the country. They generate significant revenue for both the Central and State governments. Given their importance as a significant revenue generator, both the Centre and the States are unwilling to reduce taxes on these fuels.

(Also Read: 13 Key Points You Need To Know About GST 2.0 As Tax Cuts Kick In From Today)

States are especially cautious about bringing petrol and diesel under the GST’s ambit, as it could further curtail their already limited ability to levy taxes. Doing so would increase their dependence on the Centre for receiving their share of taxes, a move they are keen to avoid.

Currently, the States have the authority to independently levy a value-added tax (VAT) on petrol and diesel. Both the centre and the states justify the heavy taxation of fuels heavily by claiming that the revenue generated is essential for financing social welfare programmes.

These commodities are major revenue sources for both the Central and state governments through excise duty and VAT. For several states, these contribute over 25-30 per cent of their tax revenue. States fear losing control over taxation policy, pricing, and the ability to influence consumption patterns through excise duty and VAT.