The centre cut its windfall tax on locally produced crude oil and aviation turbine fuel (ATF) and reduced the export tax on diesel, according to a government order dated December 15.
The Ministry of Finance slashed the tax on crude oil produced by firms such as state-owned Oil and Natural Gas Corporation (ONGC) to Rs 1,700 per tonne from the existing Rs 4,900 per tonne, a government notification said.
According to the order, the government also reduced the windfall tax on jet fuel, or ATF, from Rs 5 per litre to Rs 1.5 per litre and the export duty on fuel from Rs 8 per litre to Rs 5 per litre.
The export tax on petrol has since been scrapped, with the new tax rates effective from December 16.
Every fortnight, the tax rates are adjusted based on the two-week average of oil prices.
In comparison to last month, the average price of the crude oil that India buys was $77.79 a barrel in December. In October, it cost, on average, $91.70 a barrel.
Diesel prices have also decreased, from $133.52 in October to $123.18 in November to $104.86 a barrel this month.
The government imposes a tax on oil producers' unforeseen earnings on any price they receive that is more than a cap of $75–76 per barrel.
The tax on petroleum exports is calculated based on the margins or cracks that refiners make from international shipments. These margins largely differ between the cost and the realised international oil price.
India slapped the windfall tax on crude oil producers and charges on the export of gasoline, diesel, and aviation fuel on July 1 due to private refiners choosing to sell their products abroad to benefit from high refining margins rather than at below-market prices domestically.
The latest cut to the windfall tax coincides with a 14 per cent decline in the price of crude since November and is beneficial for a country which is the third-largest importer and consumer of oil worldwide.
According to government figures released last week, India's fuel demand reached an eight-month high in November.
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