GST on Petrol, Diesel & Alcohol: Are Fuel and Liquor Getting Cheaper After the New Reform?

Sep 22, 2025

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India’s tax landscape has undergone one of its most significant shifts with the new Goods and Services Tax (GST) reform that came into effect on 22 September 2025. This restructuring has reduced the GST slabs, cut rates on hundreds of items, and promised to simplify the tax system for both businesses and consumers.

But amid all the buzz, one question stands out: Are petrol, diesel, and alcohol going to get cheaper under the new GST regime?

These three categories are among the most consumed and most heavily taxed commodities in India. Fuel powers every sector of the economy, while alcohol forms a huge part of state revenues. In this article, we break down the GST changes, analyze their impact, and explain whether your fuel and liquor bills will actually see a difference.

The New GST Reform Explained

Before diving into petrol, diesel, and alcohol specifically, let’s first understand what has changed in the GST framework:

Old vs New GST Structure

Aspect	Before Reform	After Reform
Number of GST Slabs	4 main slabs – 5%, 12%, 18%, 28%	Reduced to 2 slabs – 5% and 18%
Goods in 12% Slab	Packaged foods, certain household items	Moved to 5% slab
Goods in 28% Slab	Consumer durables, luxury items, some building materials	Mostly moved to 18% slab
Number of Items Affected	Over 500	Around 375 items saw rate cuts
Objective	Multiple rate structure, higher complexity	Simplified structure, reduced tax burden, consumer relief

This simplification is aimed at reducing confusion, cutting tax rates on many essentials, and boosting consumer demand by leaving more money in the hands of buyers.

Petrol and Diesel: Still Outside GST

Despite the sweeping changes, petrol and diesel remain outside the ambit of GST.

Why Fuel is Excluded

State Revenue Dependency: States earn a significant share of their revenue through Value Added Tax (VAT) on petrol and diesel. Bringing fuel under GST would mean states losing this critical source of income.
Central Excise Duty: The central government also levies excise duty on fuel, which is a major contributor to its revenue.
Political Sensitivity: Fuel prices directly affect inflation and public sentiment. Any abrupt shift in taxation could have large-scale economic and political implications.

Current Taxation on Petrol & Diesel

Component	Petrol	Diesel
Base Price	Varies (set by OMCs)	Varies (set by OMCs)
Central Excise Duty	Fixed amount per litre	Fixed amount per litre
State VAT	Percentage-based, varies by state	Percentage-based, varies by state
Dealer Commission	Included	Included
Final Price to Consumer	High due to multiple layers of tax	Slightly lower than petrol but still heavily taxed

Even after the GST reform, fuel continues to be taxed separately by both the Centre and States, which means consumers will not see any direct price reduction on petrol and diesel as a result of the GST rate changes.

Alcohol: Still Outside GST Too

Just like fuel, alcohol is also excluded from the GST framework.

Why Alcohol is Excluded

State Autonomy: Alcohol taxation is a strong revenue generator for state governments. By keeping it outside GST, states retain full control over how much excise duty and VAT they levy.
Revenue Contribution: For many states, liquor taxes form more than 15-20% of their total revenue. Relinquishing this would severely impact their budgets.
Policy Flexibility: Each state sets its own pricing and tax structure, allowing flexibility depending on local consumption and policy goals.

Current Taxation on Alcohol

Component	Details
Excise Duty	Levied by the state government on manufacture and sale
State VAT	Applied additionally on alcoholic beverages
Other Levies	Some states add surcharges, additional excise, or special fees
Final Price to Consumer	Heavily inflated compared to base cost

Thus, even with GST simplification, alcohol prices remain unaffected since they continue to be taxed under state-controlled excise and VAT regimes.

What Has Actually Become Cheaper?

While petrol, diesel, and alcohol remain unaffected, the reform has delivered significant relief in other areas.

Examples of Goods Now Cheaper

Household appliances previously at 28% now at 18%.
Many packaged foods reduced from 12% to 5%.
Certain clothing and footwear shifted to lower brackets.
Services like entertainment (movie tickets) and dining in restaurants have seen lower tax impact.

This restructuring is designed to stimulate consumption, especially in the middle-income segment, by making essentials and lifestyle products more affordable.

The Broader Economic Impact

Consumer Relief: Shoppers will notice lower bills on a range of goods, which may boost spending power.
Simplification for Businesses: With fewer slabs, businesses will face less compliance complexity in billing and accounting.
State-Centre Balance: By excluding fuel and alcohol, states have retained critical sources of revenue while still being part of a simplified national GST regime.
Inflation Control: Lower GST on essentials can help moderate inflationary pressures, even if fuel prices remain high.
Revenue Neutrality: The government hopes increased consumption will balance out the revenue lost from lowering GST rates.

Consumer Takeaways

Petrol and Diesel: Prices remain the same, as these fuels are taxed outside GST. Any change depends on excise duty or state VAT revisions, not GST reforms.
Alcohol: Prices are unchanged for the same reason—state excise and VAT control.
Everyday Items: Many household goods, packaged foods, and consumer appliances are now cheaper.
Bigger Picture: While you may not save on your liquor or fuel bills, your monthly household budget could see relief through reduced costs in other categories.

Final Word

The new GST regime of 2025 is a major step toward simplification, bringing down rates for hundreds of goods and making compliance easier. However, fuel and alcohol—two of the most consumed and heavily taxed items—remain outside GST.

So, if you were hoping for cheaper petrol, diesel, or liquor after this reform, the answer is no, at least for now. For those changes, it would take a separate policy decision by both central and state governments.

That said, the reform still marks a big win for consumers, as many other essentials and lifestyle products are now lighter on the wallet.

Disclaimer

This article is intended for informational purposes only and does not constitute legal, financial, or professional advice. Tax policies and rates are subject to change by the Government of India and individual state governments. Readers should verify the latest updates from official government notifications before making financial or business decisions.

About the author

I’m Himanshu Dhar, a dedicated MIS trainer proudly associated with I Turn Institute. My journey in the realm of data management and automation spans over 14 enriching years. My passion for this field extends to freelancing projects, where I bring real-world practicality into my teaching. My impact in education is marked by the success of over 25,000 students I’ve had the privilege of mentoring, hailing from diverse backgrounds. Beyond the classroom, I’ve had the honor of conducting corporate training sessions and seminars, catering to the unique needs of businesses. Let’s unlock your potential together in the realm of data analysis and automation.