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India Responds to Plummeting Oil Prices with Substantial Tax Reductions

In a strategic move to counter the recent drastic fall in international oil prices, the Indian government has implemented significant tax adjustments, specifically targeting crude oil and diesel. These revisions aim to mitigate the impact of the plunging global oil market on India, the third-largest oil importer.

Reductions in Special Additional Excise Duty (SAED):

The central government has announced a substantial reduction in the Special Additional Excise Duty (SAED) on crude oil imports. The tax, which was previously set at Rs. 9,800 per tonne, has been slashed by 35.71% to Rs. 6,300 per tonne. This adjustment reflects the government’s proactive response to the evolving dynamics of international crude oil prices.

Diesel Duty Trimmed:

Simultaneously, the duty on diesel sees a notable reduction from Rs. 2 per litre to Rs. 1 per litre. This move is expected to provide relief to consumers amid the fluctuating global oil prices.

Aviation Turbine Fuel (ATF) Exports Remain Unchanged:

While the windfall tax on exports of aviation turbine fuel (ATF) remains at Rs. 1 per litre, the windfall tax on petrol remains unaffected, continuing at zero. This targeted approach allows the government to tailor its tax adjustments based on specific fuel types and their relevance to the Indian economy.

Effective Date and Previous Adjustments:

The new tax structure is set to come into effect from November 16, 2023, until the next adjustment is announced. It is worth noting that this move follows the government’s initiation of the first windfall tax on petrol and ATF in July 2022, where taxes were set at Rs. 6 per litre and Rs. 13 per litre for diesel. In the last adjustment on November 1st, the SAED on crude oil was increased by 75 paisa per litre, while the diesel export tax was reduced to Rs. 2 per litre.

Global Oil Price Impact on India:

As the third-largest oil importer globally, India is significantly influenced by fluctuations in international crude oil prices. Given the recent sharp decline of approximately 10% in global crude oil costs since the beginning of November, the Indian government’s decision to cut taxes on these commodities becomes imperative.

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