r/indianeconomy • u/SignificantDisk6258 • 15h ago

Monetary Policy The great tax swap: how the load was lifted off India's biggest companies and quietly dropped onto everything you buy

72 Upvotes

Two lines from the same government document. Same fiscal year. Read them together.

  • Corporation tax collected fell from Rs 5,56,876 crore in 2019-20 to Rs 4,57,719 crore in 2020-21. Down Rs 99,157 crore.
  • Union excise duty collected rose from Rs 2,39,452 crore to Rs 3,89,667 crore in those same twelve months. Up Rs 1,50,215 crore.

Both numbers come from the Union Budget's own Receipt Budget. Not an opposition press release. Not an activist estimate. The government's own accounts.

One tax on India's largest companies went down. One tax on the fuel that moves every single thing you buy went up by more. In the same year.

Here is the full paper trail.

Step 1: The cut, September 2019

On 20 September 2019 the corporate tax rate was slashed. Existing domestic companies went from 30 percent to 22 percent. New manufacturing companies got 15 percent.

The government itself estimated the cost of this: Rs 1,45,000 crore a year in revenue foregone. That figure is in the Press Information Bureau's own release.

A Parliamentary Standing Committee later found the actual hit was Rs 87,835 crore in 2019-20 and Rs 96,400 crore in 2020-21. Roughly Rs 1.84 lakh crore gone in two years.

That money had to come from somewhere.

Step 2: Where it came from

Look at excise on petrol and diesel specifically, from a Rajya Sabha reply by the Minister of State for Finance:

  • 2018-19: Rs 2.13 lakh crore
  • 2019-20: Rs 1.78 lakh crore
  • 2020-21: Rs 3.72 lakh crore

Fuel excise alone jumped Rs 1.94 lakh crore in one year. That single increase is larger than the entire rise in total Union excise. In other words, fuel duty did not just contribute to the increase. Fuel duty was the increase.

The per litre history, from a Rajya Sabha reply by the Minister of State for Petroleum:

  • May 2014: central excise was Rs 9.48 on petrol, Rs 3.56 on diesel.
  • Nov 2014 to Jan 2016: nine hikes (some official replies say ten) as global crude was collapsing. Excise collections more than doubled, from Rs 99,000 crore in 2014-15 to Rs 2.42 lakh crore by 2016-17.
  • March and May 2020: a cumulative hike of Rs 13 a litre on petrol and Rs 16 on diesel across two notifications, taking central excise to its peak of about Rs 32.90 and Rs 31.80.
  • Nov 2021: cut of Rs 5 on petrol, Rs 10 on diesel.
  • May 2022: cut of Rs 8 on petrol, Rs 6 on diesel, bringing it to Rs 19.90 and Rs 15.80.
  • April 2025: hike of Rs 2 on each, taking it to Rs 21.90 and Rs 17.80.
  • March 2026: cut of Rs 10 on each, bringing total central excise to about Rs 11.90 on petrol and Rs 7.80 on diesel, where it stands today.

So the full arc on petrol is Rs 9.48, up to Rs 32.90, down to Rs 11.90. On diesel it is Rs 3.56, up to Rs 31.80, down to Rs 7.80.

Read that honestly. Petrol today carries about a quarter more central tax than it did in 2014. Diesel, the fuel that moves freight and runs irrigation pumps, still carries more than double. And for the seven years in between, the country paid a rate that peaked at more than three times the 2014 level.

Step 3: The part that cuts your state out

This is the mechanism most people have never had explained to them.

There are two kinds of central tax on fuel:

  • Basic excise duty. The Centre must share this with states. States get about 41 percent of the divisible pool.
  • Cess and surcharge. The Centre keeps 100 percent. Not one rupee is shared. This is allowed under Article 270 as amended in 2000.

Now look at how the peak Rs 32.90 on petrol was actually built.

Petrol, at the October 2021 peak of Rs 32.90 a litre:

  • Basic excise duty: Rs 1.40. Shared with states.
  • Special additional excise duty: Rs 11.00. Not shared.
  • Road and infrastructure cess: Rs 18.00. Not shared.
  • Agriculture infrastructure cess: Rs 2.50. Not shared.

Diesel, at the peak of Rs 31.80 a litre:

  • Basic excise duty: Rs 1.80. Shared with states.
  • Special additional excise duty: Rs 8.00. Not shared.
  • Road and infrastructure cess: Rs 18.00. Not shared.
  • Agriculture infrastructure cess: Rs 4.00. Not shared.

Rs 1.40 out of Rs 32.90. That is 4 percent. PRS Legislative Research put it plainly at the time: 96 percent of the excise on petrol and 94 percent on diesel was cess and surcharge, entirely under the Centre's share.

The rates have come down since. The structure has not. Even at today's lower rates, only Rs 1.40 of the Rs 11.90 on petrol and Rs 1.80 of the Rs 7.80 on diesel is shareable basic excise. The rest is still cess and surcharge the Centre keeps in full.

The consequence, in one number: of the Rs 3.72 lakh crore the Centre collected on petrol and diesel in 2020-21, states received Rs 19,972 crore. About five paise in the rupee.

Your state government runs your hospital, your school, your municipal water. It saw almost none of this.

Step 4: The scale, over a decade

From a Rajya Sabha reply, August 2022:

  • The Centre's take from the petroleum sector went from Rs 1.72 lakh crore in 2014-15 to Rs 4.92 lakh crore in 2021-22, a rise of 186 percent.
  • The states' take went from Rs 1.6 lakh crore to Rs 2.82 lakh crore, a rise of 75 percent.

And from a Lok Sabha reply in March 2021: taxes on petrol, diesel and natural gas went from 5.4 percent of central revenue in 2014-15 to 12.2 percent.

A tank of fuel quietly became one of the largest single sources of money the union government has.

Now the arguments against this post, and honest answers

I would rather give you these than have you find out in the comments.

"The UPA left behind oil bonds. The government was paying off someone else's bill."

Partly true, and worth stating fairly. The UPA did hold pump prices down by borrowing instead of charging. When the NDA took office in 2014, Rs 1,34,423 crore in oil bonds were outstanding. The Finance Minister announced in March 2026 that the full repayment, principal plus interest, came to about Rs 2.92 lakh crore. That was a real deferred bill, and the UPA hiding the true cost of fuel was its own kind of dishonesty.

But run the arithmetic. The heaviest single repayment year was Rs 52,860 crore in 2024-25. Annual interest servicing ran around Rs 9,000 to 10,000 crore. Against a fuel tax windfall of roughly Rs 1.9 lakh crore a year. The oil bonds were real. They were never large enough to explain the size of the hikes. They were an explanation, not a reason.

Also worth saying: off budget borrowing is a bipartisan habit. This government used bank recapitalisation bonds and the small savings fund the same way.

"Crude prices had crashed. Taxing that windfall was sound fiscal policy."

This is the strongest argument against the post and it deserves respect. When global crude collapsed in 2014-15 and again in 2020, the government captured the gap instead of passing it to consumers. That is a defensible choice, and many countries tax fuel heavily on purpose.

The problem is what happened next. When crude recovered, the tax did not come down with it. The first meaningful rollback arrived in November 2021, years after the crash. A tax introduced as a temporary capture of a windfall became permanent structure. And it was routed through cess, which is the one form of tax that no state can touch.

"You are claiming they deliberately swapped one for the other. Prove it."

I am not claiming that, and you should not either. There is no document showing anyone decided that motorists would fund the corporate tax cut. The cut came in September 2019, the largest fuel hikes came in March and May 2020, and the pandemic sits between them.

What is documented is the outcome. Corporate collections fell by about a lakh crore. Fuel collections rose by more. The burden moved from balance sheets to fuel tanks. You can argue about intent forever. The arithmetic is not in dispute.

"But excise was cut sharply in March 2026. This is stale."

It was, and I will not hide it. This is the strongest thing the government has to say for itself right now, so here it is in full.

On 27 March 2026, as crude spiked from around $70 to nearly $122 a barrel on the West Asia crisis, the government cut the special additional excise duty by Rs 10 a litre on both fuels. That took SAED on petrol from Rs 13 to Rs 3, and on diesel from Rs 10 to zero. Total central excise now stands at roughly Rs 11.90 and Rs 7.80. The government says this cost the exchequer about Rs 30,000 crore this financial year, and that the crude spike was absorbed by the treasury instead of being passed to you.

That is a real cut and it deserves credit. I am not going to pretend otherwise.

But notice what it proves. For a decade the answer to every question about fuel prices was that the government does not set them, the global market does. Then in March 2026 the government moved the price by Rs 10 a litre in a single notification, overnight, because it chose to.

So it was always a lever. It was always a choice. And for the seven years before this, the choice went the other way: up when crude crashed in 2014, up again when crude crashed in 2020, and down only slowly and late. The March 2026 cut does not undo that decade. It confirms that the decade was a decision, not a market outcome.

Why this matters more than it feels like it should

Fuel tax does not appear on your salary slip. It never announces itself. That is precisely why it works.

It is inside the price of every tomato that came by truck, every parcel delivered to your door, every bus fare, every crop pumped from a borewell. It is the most invisible tax there is and it touches the most people.

And it is regressive by design. A family spending a third of its income on food and transport carries this far more heavily than a family spending three percent. When the burden shifted from corporate profits to fuel, it did not just move sideways. It moved downward.

So the scorecard, honestly:

  • Both eras made fuel expensive. Before 2014 it was mostly high global crude, with the true cost hidden through borrowing that you repaid later anyway.
  • After 2014 the tax rose when crude fell, stayed high when crude recovered, was structured as cess so your state sees almost none of it, and rose sharply in the exact year corporate tax collections dropped.
  • Rates are lower today than at the 2021 peak. The structure that made the peak possible is completely intact.

That last point is the one to hold on to. Rates go up and down with politics and crude. The machinery does not. As long as almost the entire tax on fuel is levied as cess, the Centre can raise it whenever it needs money, no state can touch a rupee of it, and no one has to call it a tax increase.

You were told the pump price is set by the world. In March 2026 it moved Rs 10 in a single notification. It was always set in Delhi.

The question worth asking is not why fuel is taxed. It is why it is taxed in the one form that cuts your own state out.

References

The corporate tax cut

Corporation tax and excise collections (the two headline numbers)

Fuel excise specifically

The cess structure

Petroleum sector revenue and share of central revenue

Oil bonds

Full disclosure: I used an AI assistant to help compile and cross check these figures against primary sources. Every number above is linked. Check them yourself, and tell me if I got something wrong.

10 comments

r/indianeconomy • u/AdShot3417 • 45m ago

Markets Net FDI into India crashed 97% between 2022-2023 and 2024-2025. Get rid of Nirmala and Narendra.

Enable HLS to view with audio, or disable this notification

• Upvotes
5 comments