Wednesday, March 3, 2021
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Union Budget proposes cess on Petrol and Diesel, but will have no impact on overall fuel prices: Read why

The move to bring additional cess on petrol and diesel by the Modi government is to appropriate more revenue from fuel as it does not have to share such proceeds with the state governments.

Union Finance Minister Nirmala Sitharaman on Monday announced a new Agriculture Infrastructure and Development Cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel in the Union Budget – 2021.

However, the new cess will not impose any additional burden on the consumer overall as the Finance Minister also proposed to reduce Basic Customs Duty on these items.

“I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items. Consequent to the imposition of Agriculture Infrastructure and Development Cess (AIDC) on petrol and diesel, Basic excise duty (BED) and Special Additional Excise Duty (SAED) rates have been reduced on them so that overall consumer does not bear any additional burden” FM Sitharaman said in her Budget speech.

From now on, the unbranded petrol and diesel will attract basic excise duty of Rs 1.4, and Rs 1.8 per litre respectively.

The Special Additional Excise Duty (SAED) on unbranded petrol and diesel shall be Rs. 11 and Rs. 8 per litre respectively. Similar changes have also been made for branded petrol and diesel, the FM announced.

What is Cess?

Cess is a tax levied or collected by any government for the development or welfare of a particular service or sector. It is levied over and above direct and indirect taxes.

Often, Cess collected for a particular purpose cannot be deviated or used for fulfilling other purposes. It is not a permanent source of revenue for the government, and it can be discontinued when the purpose levying it is fulfilled. The government often uses cess to fulfil a particular development objective.

Cess is different from taxes such as direct taxes and indirect taxes as it is charged above such taxes. While all the taxes collect end up in the Consolidated Fund of India (CFI), the cess collected may initially go to the CFI, however it has to be used for the designated purpose.

The central government often take the cess route as the proceeds of a cess may or may not be shared with the state government thus increasing its own revenue.

The move to bring additional cess on petrol and diesel by the Modi government is to appropriate more revenue from these new cess as it does not have to share such proceeds with the state governments.

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OpIndia Staff
Staff reporter at OpIndia

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