prpri How are Fuel Prices Determined in India? How are Fuel Prices Determined in India?

How are Fuel Prices Determined in India? 

Fuel rates are revised everyday at 06:00 AM in India, and this is called dynamic fuel price method. This makes sure that variations of global oil prices throughout the day are transmitted and reflected to fuel users and dealers.

Let us understand few terms before understanding how the fuel price determination works:

Oil Refineries: These refineries buy or extract crude like WTI (West Texas Intermediate) Crude, Brent Crude, OPEC Basket crude, etc. and convert these crudes into petrol, diesel, Aviation turbine fuel, Biofuels, etc.

Examples of such refineries are Reliance Industries, Nayara Energy, Bharat Petroleum, Indian Oil, Shell, ONGC, Saudi Aramco, etc.

OMC (Oil Marketing Companies): These are the companies who market the converted crudes (petrol, diesel, etc.) to dealers and ultimately to users.

Examples of such refineries are Indian Oil, Bharat Petroleum, Shell, Essar, etc.

Dealers: Dealers are the People who are engaged into business of buying fuels from OMCs and distributing them to users. They are distributors of fuel.

Example: Arvind Patel and Pravin Patel are distributors of cars of Maruti Suzuki Co., they are called dealers of the company and runs the business known as ‘Patel Motors’.

In the same way when we see a fuel outlet, it belongs to some dealer. (In rare cases, company may serve their fuels to public directly if they feel fuel prices are too high so they should cut-off the dealer’s commission)

Users: WE are the users of fuel for our vehicles, also the airplane transport companies who buys the aviation turbine fuels from OMCs directly to keep their planes flying through the skies. 

How the Retail Fuel Price Mechanism Works?

Price at which Dealers buys from OMCs
Add: Excise Duty (Central Tax levied on certain goods)
Add: Dealer’s Commission
Add: VAT (Value Added Tax) (State Tax which may differ from State to State)
= Retail Selling Price of Fuel

(Interesting Fact: The amount you are paying for 1 Liter fuel consists of average 70% taxes)

How can Government controls Prices of Fuels?

Central government’s tool to control prices of fuel is Excise Duty.

State government’s tool to control prices of fuel is VAT.

Who is the official regulator of Fuel prices in India?

Apart from taxes, Central government regulates the prices of fuels through base prices and cap prices at which dealers and OMCs deal with each other, decided by PPAC (Petroleum Planning and Analysis Cell) under Ministry of Petroleum and Natural Gas. One can find constructive information about current fuel prices of Indian Basket on its official website (i.e. https://www.ppac.gov.in/).

Apart from this there are many licenses, regulations, laws applicable to refineries, OMCs, dealers, etc. and after passing through all this processes we get our tank filled with the fuel.

Author Bio

Qualification: Student - CA/CS/CMA
Company: TaxChela
Location: Surat, Gujarat, India
Member Since: 11 May 2021 | Total Posts: 5
Hi, I am Kush, I am a CA Aspirant, born and raised in Surat, Gujarat. Always open to learn new things. View Full Profile

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