Crude Ethanol GST Cut A Turning Point for Biofuels?
Union Minister Nitin Gadkari has urged the Finance Ministry to reduce GST on crude ethanol, currently taxed at 18%. The move could drastically boost India’s biofuel capacity, reduce import dependence, and support farmers. This blog decodes what this proposal means for taxpayers, the ethanol industry, and GST structure.
What is Crude Ethanol
Crude ethanol, a biofuel derived from sugarcane or damaged grains, is a raw material for blending with petrol.
- Current GST Rate: 18% under HSN 2207
- Finished Ethanol Rate (for EBP): 5% under GST Notification No. 12/2017-CT(Rate)
- Reason for Higher Rate: Crude ethanol is classified as an input chemical, not as a fuel-grade product
Why is Nitin Gadkari Seeking GST Reduction?
Minister’s Key Concerns:
- High Input Cost: 18% GST inflates procurement cost for Oil Marketing Companies (OMCs)
- Farmer Impact: Lower procurement dampens demand from sugar mills and grain producers
- Green Energy Goal: Cheaper ethanol will accelerate India’s target of 20% ethanol blending by 2025
➡ Source: As reported by PTI via Economic Times and in line with NITI Aayog’s ethanol roadmap
What Happens if GST on Crude Ethanol is Reduced to 5%?
| Impact Area | Current (18% GST) | Proposed (5% GST) |
|---|---|---|
| Cost to OMCs | High due to non-creditable input GST | Lower cost encourages ethanol procurement |
| Farmer Earnings | Indirectly reduced due to lower procurement | Likely to increase due to higher demand |
| GST Revenue to Govt | Higher per litre, but lower volume | Lower per unit, but could grow due to volumes |
| Green Energy Adoption | Slower due to high input cost | Faster transition to cleaner fuels |
Legal and Tax Angle
- GST Council Jurisdiction: Any rate reduction requires formal GST Council approval under Article 279A
- Legal Basis: Crude ethanol is classified under Chapter 22 (HS Code 2207), and falls under Entry 26A of Notification No. 1/2017-CT(Rate)
Expert Tip
“Bringing crude ethanol under the 5% slab aligns with India’s green fuel policy and helps balance fiscal and environmental goals,” says a tax policy expert from Efiletax.
FAQ – GST on Ethanol Related Queries
Q1. Is GST credit available on crude ethanol used for petrol blending?
No. Since petrol is a non-GST item, input tax credit (ITC) on ethanol is blocked under Section 17(5) of the CGST Act.
Q2. When will the GST rate be revised?
Only after deliberation and recommendation by the GST Council in its upcoming meetings.
Q3. How is ethanol blending currently incentivized?
Lower GST would enhance margin and procurement interest.
Conclusion
The push to reduce GST on crude ethanol could unlock large-scale benefits for India’s fuel security and farmers’ incomes. If the GST Council acts on Gadkari’s suggestion, it could become a landmark reform in India’s green economy shift.
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Summary
Nitin Gadkari urges GST cut on crude ethanol to 5%. If accepted, it could boost biofuel production, benefit farmers, and support India’s green goals.