Will Petrol & Diesel Get Cheaper Under GST 2.0? Full Breakdown of New Tax Slabs
GST 2.0, effective September 22, 2025, cuts tax rates on 375 goods and services with just 5% and 18% slabs. But will petrol and diesel prices fall under GST? Here’s everything you need to know.
BUSINESS & ECONOMY
India has entered a new era of indirect taxation with the rollout of GST 2.0 on September 22, 2025. The revised Goods and Services Tax regime, finalized during the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman, has restructured tax slabs and reduced GST rates on 375 goods and services. The move aims to simplify compliance, boost consumer spending, and inject fresh momentum into India’s economy amid global uncertainty.
One of the biggest changes is the removal of the old four-tier GST system. From September 22, only two primary GST slabs – 5% and 18% – are applicable. Most items that earlier attracted 12% or 28% GST have now been shifted into the lower brackets.
Prime Minister Narendra Modi hailed the reforms, stating, “The GST revamp will infuse ₹2 lakh crore into the economy by leaving consumers with more disposable income and strengthening demand across industries.”
This naturally raises a critical question for consumers: Will petrol and diesel prices become cheaper under GST 2.0? Let’s break it down.
GST 2.0: Key Highlights
Under the new GST framework:
99% of items previously taxed at 12% are now under the 5% slab.
90% of items earlier taxed at 28% have moved to the 18% bracket.
Luxury and demerit goods such as tobacco, cigarettes, aerated drinks, and luxury cars attract a special 40% GST rate.
Everyday essentials like milk, butter, paneer, packaged foods, household products, and select services have become cheaper.
The festive season 2025 is expected to see a direct boost in demand as families benefit from lower tax burdens and greater affordability.
What’s Not Changing: Fuel And Alcohol
Despite these sweeping reforms, petrol and diesel remain outside GST 2.0. Their prices are still determined by a combination of central excise duties and state-level VAT (Value Added Tax).
This means fuel costs continue to vary from state to state. For instance, the price of petrol in Delhi may be lower compared to Maharashtra or Karnataka due to differences in VAT rates.
Similarly, alcohol is also excluded from GST. States impose excise duties and VAT on liquor, which forms a significant source of state revenue. According to the International Spirits & Wine Association of India (ISWAI):
Goa levies around 55% excise duty on alcohol (lowest in India).
Karnataka charges as high as 80% excise duty (highest in India).
Thus, consumers should not expect any immediate relief in fuel or liquor prices under GST 2.0.
Why Petrol And Diesel Are Not Under GST Yet
For years, experts and industry bodies have argued that bringing fuel under GST could reduce prices, streamline taxation, and remove state-wise disparities. However, states strongly oppose this move.
Here’s why:
Revenue Dependence – States earn a significant portion of their revenue from VAT on fuel. If fuel is subsumed under GST, they fear losing this revenue.
GST Compensation Challenges – Even with GST compensation cess (which ended in 2022), states remain skeptical about whether the Centre can guarantee equivalent earnings if fuel is included in GST.
Political Sensitivity – Fuel prices directly impact public sentiment. States prefer to retain control over taxation for flexibility in times of crisis.
Thus, while GST 2.0 has simplified tax slabs and reduced rates across goods and services, fuel remains untouched due to these political and fiscal constraints.
Will Petrol And Diesel Ever Come Under GST?
The debate is ongoing. Several economists believe that bringing petrol and diesel under GST could lower prices by 20–30%, depending on the rate applied.
If fuel were taxed at 18% GST, consumers could benefit from cheaper prices, and businesses would gain from uniformity in transport costs.
However, the Centre and states would need to restructure revenue-sharing mechanisms to avoid fiscal deficits.
As of now, there is no official timeline for including fuel under GST. The matter may be revisited in future GST Council meetings if fiscal conditions stabilize.
Impact Of GST 2.0 On Consumers
Even though fuel and alcohol are excluded, GST 2.0 brings several benefits for Indian households and businesses:
Lower Everyday Costs – Packaged foods, household products, and essentials are now cheaper due to lower tax rates.
Boost In Disposable Income – Consumers are likely to save more, thereby increasing discretionary spending during the festive season.
Simplified Compliance – Businesses no longer need to juggle between four tax slabs. With only two slabs, filing GST returns becomes easier.
Boost To MSMEs And Startups – Lower tax rates reduce input costs for small businesses, enhancing competitiveness.
Industry Reactions To GST 2.0
Retail Sector: Anticipates a surge in festive shopping as lower GST rates make consumer goods more affordable.
Automobile Industry: Welcomes the reduction of most 28% items to 18%, though luxury vehicles still attract higher taxes.
Hospitality & Tourism: Sees GST 2.0 as a game changer, with lower tax rates likely to encourage domestic and international tourism.
Overall, the reform is expected to strengthen consumer sentiment and spur economic activity in the short to medium term.
Key Takeaways
GST 2.0, effective September 22, 2025, simplifies tax slabs to 5% and 18%.
Prices of everyday goods and services have fallen, boosting consumer spending.
Petrol and diesel remain outside GST, as states rely heavily on VAT revenue.
There is no immediate relief in fuel prices, but future inclusion under GST remains a possibility.
Businesses, consumers, and the overall economy are expected to gain from the new simplified GST structure.
Conclusion
The introduction of GST 2.0 is a landmark reform in India’s indirect tax system. By reducing rates on hundreds of goods and simplifying tax slabs, it promises to boost affordability and consumption. However, petrol and diesel remain excluded, keeping fuel prices high and state-dependent.
Until fuel is brought under GST, consumers will continue to feel the pinch of fluctuating petrol and diesel rates despite enjoying relief on other essentials. The long-term question remains: will India eventually integrate fuel into the GST framework to ensure uniform pricing nationwide?
For now, GST 2.0 is a consumer-friendly reform that makes daily essentials cheaper, but fuel prices are unlikely to see immediate relief under this new tax regime.
❓ Frequently Asked Questions (FAQ)
1. What is GST 2.0 in India?
GST 2.0 is the revised Goods and Services Tax regime implemented on September 22, 2025, after the 56th GST Council meeting. It replaces the earlier four-tier tax system with only two slabs – 5% and 18%, making compliance simpler and reducing taxes on over 375 goods and services.
2. Will petrol and diesel become cheaper under GST 2.0?
No. Petrol and diesel remain outside GST 2.0. Their prices are still determined by central excise duties and state VAT, which is why fuel costs vary across states.
3. Why are petrol and diesel not included in GST?
States earn significant revenue from VAT on fuel. Including petrol and diesel under GST could reduce this income, making states resistant to the change. Hence, they remain outside the GST structure for now.
4. Could petrol and diesel be brought under GST in the future?
Yes, but there is no official timeline yet. Experts believe including fuel under GST could cut prices by 20–30%, but states would need a revenue-sharing mechanism to avoid losses.
5. Which items became cheaper under GST 2.0?
Goods like packaged foods, dairy products, household items, and many consumer services saw tax cuts as most items previously taxed at 12% and 28% were moved to the 5% and 18% slabs.
6. Is alcohol included in GST 2.0?
No. Like fuel, alcohol is also excluded from GST and is taxed separately by states through excise duties and VAT.