Centre exempts higher ethanol petrol from excise, rollout subject to tests

The government has extended excise-duty exemption to petrol blended with 22-30 per cent ethanol but said adoption of higher blends will follow extensive testing and stakeholder consultations

The Centre has exempted petrol blended with higher proportions of ethanol from central excise duty, in a move aimed at promoting the use of cleaner fuels and accelerating the country’s ethanol blending programme.

 

According to a notification issued by the Department of Revenue, petrol containing 22-30 per cent ethanol will attract nil excise duty. The notification inserted separate entries for E22, E25, E27 and E30 petrol blends and prescribed a nil duty rate for such fuels, subject to specified conditions and compliance with Bureau of Indian Standards (BIS) specifications.

 

The decision comes after India achieved its target of 20 per cent ethanol blending in petrol and is now exploring the adoption of higher blends. The roll out of higher blended fuels, however, would only be initiated after extensive testing and consultation, the government clarified.

 

 

“Blending of ethanol with petrol at the depot level is theoretically a manufacturing activity which can be subjected to excise duty. E20 was exempted by the Ministry of Finance. Same clarification has been issued for higher blends and there is nothing new. With higher BIS standards available, the same excise duty waiver has been extended to E22, 25,27 and E30,” said Sujata Sharma, joint secretary at Ministry of Petroleum and Natural Gas (MoPNG).

 

“This is a preliminary prerequisite for eventually introducing higher blends, but doesn’t convey anything about roll out of higher blends as of now, as that will only be done after extensive testing and consultation,” Sharma added.

 

Another senior official clarified that the decision exempts Ethanol Blended Petrol (EBP) blends E22, E25, E27 and E30 containing 22 per cent, 25 per cent, 27 per cent and 30 per cent ethanol, respectively, from the applicable central excise duties, subject to the condition that appropriate central excise duties have already been paid on petrol and appropriate goods and services tax (GST) has been paid on the ethanol used for blending.

 

"The objective is only to remove the deeming fiction under the Central Excise law that could otherwise result in levy of excise duty again upon the activity of blending of ethanol with petrol, thereby, avoiding any incidence of double taxation. The exemption has been provided on the same lines as is already existing for EBP blends such as E5, E10, E20 etc. There is no change in the central excise duty rate on petrol for domestic consumption," the official said.  

 

The exemption is expected to benefit sugar mills and grain-based distilleries, which have emerged as key suppliers of ethanol under the blending programme. India has significantly increased ethanol blending in petrol over the past few years through a combination of incentives, procurement programmes and regulatory measures. 

 

Industry bodies welcomed the decision, stating the move signals policy stability and addresses the issue of current surplus of ethanol. For the distilling industry, the exemption is a powerful demand-side signal, which creates a clear commercial pathway to deploy surplus ethanol production capacity, which currently stands well above E20 programme requirements, said Bharati Balaji, deputy director general, All India Distillers Association (AIDA).

 

"Fiscal incentives must keep pace with blending ambitions, and today's announcement does exactly that. It strengthens farmer incomes, reduces our crude import bill, and reinforces India's energy security at a time when global fuel markets remain deeply volatile. We urge state governments to complement this measure with aligned tax structures so that the full benefit reaches both industry and consumers at the pump," Balaji said.

 

According to C K Jain, president at Grain Ethanol Manufacturers Association (GEMA), the exemption sends a strong signal of policy stability essential for attracting fresh investments across the ethanol value chain, including production capacity, logistics, storage, fuel retailing and flex-fuel mobility solutions. "It will accelerate the adoption of higher ethanol blends, reduce dependence on imported crude oil, strengthen India's energy security and generate substantial foreign exchange savings,” he said. 

 

India recently achieved 20 per cent blending of ethanol in petrol. However, the initiative hit a roadblock amid reports claiming that a vehicle’s efficiency and mileage is affected due to the presence of ethanol. The controversy resulted in several ethanol producers having procurement orders less than their capacities.