‘There is a legal provision...’: FM Nirmala Sitharaman explains why fuel is still taxed outside GST

In her first post-reform interview, Finance Minister Nirmala Sitharaman confirmed there’s no immediate plan to bring petrol and diesel under GST or to restore input tax credit (ITC) for real estate builders, despite long-standing industry demands.

Speaking at an exclusive session with India Today, Sitharaman clarified that the inclusion of petrol and diesel under GST is legally permitted but states need to take the call. “The law allows it, but implementation depends on states agreeing on the rates,” she said. “The GST Council will take the call when states find it appropriate.”

Currently, petrol and diesel are taxed through state-level VAT and central excise, both of which are major revenue sources. While the GST framework has always included a provision to absorb these fuels, states have consistently resisted, fearing significant revenue loss.

On the real estate front, Sitharaman dismissed the possibility of reintroducing ITC for under-construction properties. Builders currently pay 5% GST but cannot offset the tax paid on inputs like cement and steel. The industry has long argued that this inflates costs and reduces margins.

Sitharaman said the current structure was a direct response to requests for simplification and transparency. Despite a recent rate cut on key materials—cement from 28% to 18% and granite from 12% to 5%—the core policy of denying ITC remains intact. The government argues this avoids revenue leakage and complexity in compliance.

Developers, however, continue to lobby for ITC restoration, warning of rising project costs and competitive disadvantage. For now, the government’s stance is clear: no ITC, and no fuel under GST unless states lead the move.