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Price of branded or premium petrol will be cut by over INR 5 per litre after the government reduced excise duty on the fuel.

The government had in 2008 introduced differential duty structure for normal and branded/premium petrol and diesel. Branded petrol attracts a total of INR 15.50 per litre in excise duty as compared to INR 9.20 a litre on regular or unbranded fuel.

Similarly, branded diesel attracts INR 5.75 a litre excise duty as opposed to INR 3.46 a litre for fuel without a brand name. This had led to sales of branded fuel falling to almost nil. Finance Minister Arun Jaitley presenting his maiden Budget announced reduction of central excise duty on branded petrol from INR 7.50 per litre to INR 2.35 a litre.

No change in excise duty on branded diesel was made.

Ever since their introduction in 2002, sale of premium or branded fuels have dwindled from a peak of 5.9 million kilolitres of diesel and 3.4 million kl of petrol in 2007-08 to a mere 0.45 kl of diesel and 0.09 kl of petrol in 2012-13.

The current excise duty on branded petrol is made up of INR 7.50 basic excise duty, INR 6 special additional excise duty and INR 2 additional excise duty. On regular or unbranded fuel, special additional excise duty and additional excise duty are the same but the basic rate is only INR 1.20 a litre.

Today's reduction will bring down the incidence of excise duty on branded petrol to INR 10.35 a litre. Branded petrol currently costs INR 83.08 per litre as compared INR 73.55 cost of regular fuel. Premium diesel costs INR 64.95 per litre while unbranded diesel is priced at INR 57.84.

The Saumitra Chaudhuri Committee on Auto Fuel Vision & Policy 2025 had in a recent report stated that the differential duty rate would not fulfil the narrow revenue objectives as branded fuel sales have fallen sharply.

"The 'branded' products are premium automotive fuels that result in improved engine life and better long term mileage and policy should encourage their use, not discourage it," the panel said in its report submitted to the Oil Ministry.

The panel said that the it was argued that a higher priced product - which premium fuels indeed are - should be taxed at a higher rate.

"This legitimate concern can be taken care of by imposing a small differential in the excise duty of 50 paise per litre, which will more or less maintain the inter se tax proportionality as between regular and premium automotive fuels, as long as the duty rates remain fixed and do not change to ad valorem," the report said.

Source-On Request