Why Petrol Prices Differ Between States in India - VAT Rates Explained

Petrol can cost ₹10–15 more per litre in one state versus another city just across the border. Here's the exact breakdown of why.

May 20265 min read

Key Takeaways

1Central excise duty is uniform nationwide at ₹19.90/L for petrol - every state pays the same.
2State VAT is the key variable - it ranges from ~19% (Delhi) to ~36% (Rajasthan) of the base price.
3Telangana charges ~35% VAT on petrol; Maharashtra ~26%; Karnataka ~25.92%.
4The Hyderabad–Delhi price difference of ~₹10–12/L is almost entirely explained by VAT difference.
5Some states also levy additional cesses and surcharges on top of VAT.

How the Retail Petrol Price Is Built Up

The final price you pay at the pump is not set arbitrarily. It has several well-defined components, each decided by a different authority. Understanding these layers explains why prices differ so dramatically across state borders.

The process starts with the international crude oil price. India imports about 85% of its crude oil, primarily from Saudi Arabia, UAE, Iraq, and Russia. Indian Oil, HPCL, and BPCL purchase this crude, refine it, and set a base price (called the 'desired price') that OMCs (Oil Marketing Companies) would like to charge. To this, several charges are added.

Base price (ex-refinery): varies with crude oil price - approximately ₹55–65/L in mid-2026
Central Excise Duty: ₹19.90/L for petrol (uniform across India, set by Central Government)
Basic Customs Duty on crude: included in the refinery cost
Freight charges: ₹0.30–0.50/L depending on distance from refinery
OMC margin: approximately ₹3–4/L
Dealer/petrol pump commission: approximately ₹3.85/L (Delhi rate, varies slightly)
State VAT/Sales Tax: the biggest variable - varies from 19% to 36%
Additional state cesses (where applicable)

Central excise duty was ₹32.90/L in 2021 before the government cut it by ₹8/L in May 2022 to provide relief after prices hit ₹105/L. The current rate of ₹19.90/L has been stable since then.

State VAT Rates: The Big Differentiator

While the central government levies excise duty uniformly, state governments are constitutionally empowered to levy their own sales tax (VAT) on petrol and diesel. These taxes go directly to state revenues. Since petrol is excluded from GST, states retain full control over these rates - and there is no cap or standardisation.

Rajasthan consistently charges the highest VAT on petrol in India at approximately 36% plus ₹1,500/kL road development cess. Telangana charges approximately 35.2% VAT. These high rates explain why Jaipur and Hyderabad consistently top the charts for expensive petrol.

Delhi deliberately keeps its VAT low (approximately 19.4% of base price after a VAT reduction in 2021) as a policy choice to keep costs down for the capital's commuters. Maharashtra's VAT is approximately 26%, while Karnataka charges about 25.92%. Gujarat and Uttar Pradesh fall in the 26–28% range.

Rajasthan: ~36% VAT + ₹1,500/kL cess → petrol ~₹107–110/L in Jaipur
Telangana: ~35.2% VAT → petrol ~₹108–112/L in Hyderabad
Andhra Pradesh: ~31% VAT → petrol ~₹103–107/L in Vijayawada
Maharashtra: ~26% VAT → petrol ~₹103–106/L in Mumbai
Karnataka: ~25.92% VAT → petrol ~₹101–104/L in Bengaluru
Uttar Pradesh: ~26.8% VAT → petrol ~₹94–97/L in Lucknow
Delhi: ~19.4% VAT → petrol ~₹94–97/L in Delhi
Gujarat: ~13.7% VAT + additional charges → petrol ~₹93–96/L in Ahmedabad

These figures are approximate mid-2026 rates. State VAT rates change periodically - states often revise them during budget sessions. For accurate current prices, check the GaadiInfo Fuel Prices page or IOCL/HPCL/BPCL dealer portals.

The Hyderabad vs Delhi Example: A Real Calculation

Let us walk through why petrol costs roughly ₹10–12/L more in Hyderabad than in Delhi at the same point in time. The base price (ex-refinery for the day) is identical for both cities - let us say ₹58/L. Freight to Hyderabad from the nearest refinery (HPCL Visakhapatnam or BPCL Mumbai) may add ₹0.50–0.80 more than freight to Delhi (from Mathura refinery, which is very close), contributing perhaps ₹0.40/L difference.

The central excise duty is identical: ₹19.90/L. OMC margin and dealer commission are also very similar. So the base cost before state tax is roughly ₹85–86/L in both cities. Now Telangana applies approximately 35.2% VAT on the pre-tax price, adding roughly ₹27–28/L. Delhi applies 19.4% VAT, adding roughly ₹17–18/L. That VAT difference of ₹9–10/L is almost the entire explanation for why Hyderabad is more expensive.

Petrol prices change daily in India since June 2017, when the government moved to dynamic pricing aligned with international crude benchmarks. Both cities update prices at 6 AM each day based on the 15-day rolling average crude price.

Dynamic Pricing and the 2017 Reform

Before June 2017, India had fortnightly price revisions decided by the government - prices were often kept artificially low for political reasons, accumulating massive losses for OMCs (the so-called 'under-recovery' era). This led to OMCs borrowing heavily and distorting investment decisions.

The shift to daily dynamic pricing in June 2017 was a structural reform. Now, prices reflect international crude prices with a 15-day smoothing lag. When Brent crude spiked above $130/barrel after the Russia-Ukraine conflict in February 2022, Indian retail prices eventually reached ₹105.41/L in Delhi by April 2022. The government then cut central excise duty by ₹8/L in May 2022 (a ₹1 lakh crore per year hit to central revenues) to bring prices down.

Dynamic pricing means prices can theoretically change every day, though in practice OMCs often keep prices stable for weeks during politically sensitive periods (elections, budget season) and absorb the variation in their margins. This is an open secret - it is not an official policy.

Can Petrol Prices Be Made Uniform Across India?

The most frequent demand from consumer groups is to bring petrol under GST, which would create a uniform tax rate nationwide. However, petrol and diesel were deliberately excluded from GST in 2017 because they are the single largest source of own-tax revenue for state governments. Telangana, for example, earns thousands of crores annually from petrol VAT. States have consistently blocked GST inclusion of petroleum products in GST Council meetings.

Until petrol is brought under GST - which requires a constitutional amendment and agreement from all states - inter-state price differences will persist. The Central Government's excise cuts can reduce the overall price level, but the inter-state gap can only be eliminated by standardising state-level taxes.