Excise duty on petrol and diesel reduced — What changed, what didn’t, and why

The Central Government has slashed excise duty on petrol and diesel in India. It takes effect immediately from March 26. The Ministry of Finance formalised it via Notification No. 11/2026-Central Excise. This isn't the pump price drop drivers have hoped for.

It directly offsets losses for state-owned oil marketing companies (OMCs). International crude oil prices have surged nearly 75% in under four weeks. OMCs have been absorbing the hit. Now, this duty cut eases that pressure. Let's dive deeper into the details of this excise duty reduction.

What the Excise Cut Looks Like in Numbers

Source: Ministry of Finance Notification No. 11/2026-CE, March 26, 2026. Total excise figures include basic excise + special additional excise + road and infrastructure cess components.

The government has cut the special additional excise duty on both petrol and diesel by Rs 10 per litre. On petrol, this special duty drops from Rs 13 per litre to Rs 3 per litre. On diesel, it is being cut to zero from Rs 10 per litre. If you look at the total tax (basic excise + special additional excise + road & agriculture infrastructure cess), then:

• Petrol’s total excise burden goes down from about Rs 21.90 per litre to Rs 11.90 per litre.
• Diesel’s total excise burden falls from about Rs 17.80 per litre to Rs 7.80 per litre.

In simple terms, the government has reduced the tax on every litre of petrol and diesel by Rs 10, but this money is going to protect oil companies, not to lower pump prices for consumers right now.

Why petrol and diesel prices at the pump have not changed

The losses OMCs are currently absorbing are far larger than what the Rs 10 cut covers. Imagine filling a 50-litre diesel tank: that's Rs 4,095 in losses per fill-up alone (at Rs 81.90/litre under-recovery). The Ministry of Petroleum and Natural Gas estimates under-recovery on diesel at around Rs 81.90 per litre. On petrol, it is around Rs 26 per litre. The combined daily loss across the three state-run companies, Indian Oil, BPCL, and HPCL, is approximately Rs 2,400 crore.

The Rs 10 cut offsets part of this, estimated at 30 to 40 percent of annualised OMC losses at current prices, according to Emkay Global. It's like giving them Rs 500 back on that 50-litre tank example. The government has simultaneously instructed OMCs not to raise retail prices. So the duty cut functions as a partial subsidy to the companies rather than a discount at the fuel station.

Sources: Ministry of Petroleum and Natural Gas (PIB release, March 27, 2026), Emkay Global, India Ratings and Research. OMC under-recovery based on crude prices prevailing in March 2026. The fiscal cost of this call is significant. Economists estimate the annualised revenue loss from the duty cut at Rs 1.55 to Rs 1.70 lakh crore. 

India Ratings and Research puts the upper end at Rs 1.70 lakh crore if the revised structure holds through FY27. The government has indicated that the revenue impact will be assessed fortnightly. CBIC Chairman Vivek Chaturvedi noted the situation is "dynamic and not business as usual."

Current petrol and diesel prices at the pump — OMCs vs private retailers

Retail prices at state-run IOCL, BPCL, and HPCL outlets remain frozen at levels last revised in April 2022. In Delhi, petrol is Rs 94.77 per litre and diesel is Rs 87.67. Picture a Delhi commuter filling up 40 litres weekly: that's still Rs 3,790 for petrol, unchanged despite crude oil swinging wildly up and down over the past three years.

Nayara Energy, India's largest private fuel retailer with around 6,967 outlets, moved first. On March 26, it raised petrol by Rs 5 per litre and diesel by Rs 3, becoming the first major fuel retailer to pass on the current crude surge partially to consumers. Jio-bp, with around 2,185 outlets, has not raised prices yet despite reported losses.​

Prices as of March 27, 2026. IOCL figures for Delhi. Nayara prices are post-revision. State VAT varies; retail prices differ by city and state.

Export levy on diesel and ATF

Alongside the duty cut, the government has reinstated an export levy, a special additional excise duty of Rs 21.50 per litre on diesel exports and Rs 29.50 per litre on aviation turbine fuel (ATF). This mechanism was first used in July 2022 during the Russia-Ukraine-driven crude surge and was withdrawn in December 2024.

The reasoning is practical. When international diesel prices are sharply elevated, refiners have a clear financial case to export rather than supply domestic pumps. It's like a farmer choosing to sell crops abroad for double the price instead of the local market, the levy removes that incentive and keeps refinery output directed towards the domestic market. The levy will be reviewed fortnightly, in line with the 2022–24 practice.​

The levy does not apply to fuel exports by public sector OMCs to Nepal, Bhutan, Bangladesh, and Sri Lanka, these remain exempted. ATF supplied to foreign-going aircraft is also outside the levy's scope.

Supply situation — No shortage, government says

Panic buying reports and rumours of fuel shortages spread across social media in the days following the conflict escalation. The Ministry of Petroleum and Natural Gas has dismissed these as a "deliberately mischievous, coordinated campaign of misinformation." As of March 27, India has approximately 74 days of total reserve capacity, with actual stock cover at around 60 days, covering crude, petroleum products, and strategic underground reserves. That's enough for two full months of steady supply for every Indian, no matter what happens globally.

HPCL confirmed no shortage of petrol, diesel, or LPG anywhere in the country. Indian Oil stated supply chains are operating without disruption and that procurement for the next two months has already been secured. The ministry also noted that domestic LPG production has been increased by 40 percent by diverting refinery streams previously used for petrochemicals.

India has also been diversifying crude sourcing. Reduced Gulf supply is being compensated through increased imports from West Africa, Latin America, and the United States. India is a net exporter of petrol and diesel, which means domestic refining capacity is not the constraint.

How long can this last — The crude price threshold

That largely depends on where crude oil settles. Analysis from Elara Capital, issued before the duty cut, estimated that India can protect retail fuel prices through excise adjustments until crude reaches around USD 110 per barrel. Beyond that level, a retail price hike becomes difficult to avoid regardless of how much excise room is left.

International crude prices reached USD 119 per barrel earlier this month before pulling back. On March 27, Brent was trading around USD 105, down roughly 2 percent on the day. WTI was near USD 92. If prices hold around this range, the current structure may be sustainable. If they climb back towards the USD 120 level, the government will face a harder call.

The fortnightly review framework signals that this is a temporary, conditional intervention, not a permanent revision to the excise structure. The government is watching, measuring, and reserving the right to adjust in either direction.

India vs the World: How other countries have responded

The government's official communication drew a direct comparison with global fuel markets. Pump prices across South and South-East Asia have risen 30 to 50 percent since the crisis began. North America is up approximately 30 percent. Europe has seen increases of around 20 percent. India has held retail prices flat.

That stability carries a cost, and the government has chosen to bear it, at least for now. Petroleum Minister Hardeep Singh Puri stated the government had two choices: raise prices as other countries have, or absorb the cost on government finances to protect the Indian consumer. The latter was chosen. Finance Minister Nirmala Sitharaman confirmed on March 27 that the reduction in excise duty "will provide protection to consumers from rise in prices."​

This follows the same approach used during the 2022 Russia-Ukraine crude surge, when OMCs absorbed losses for extended periods and the government cut central taxes to partially offset the pressure on the companies. The current intervention applies the same logic to a sharper and faster-moving crisis.