Petrol containing 22% to 30% ethanol exempt from excise duty

India, which ranks as the world’s third-largest importer and consumer of oil, announced on Wednesday that it has removed the excise duty on petrol blended with higher proportions of ethanol. Under the new policy, petrol containing between 22% and 30% ethanol will no longer be subject to excise tax, according to an official notification.

The tax exemption applies to E22, E25, E27 and E30 petrol blends, which contain different amounts of ethanol mixed with petrol. According to the Finance Ministry, these fuels consist of 78%, 75%, 73% and 70% petrol, with the remaining 22%, 25%, 27% and 30% containing ethanol, respectively.

The news does not just put oil marketing stocks in spotlight. In fact, the development will directly put the focus on stocks linked to the Ethanol Blended Petrol (EBP) program. These include a host of sugar manufacturers that are looking to pivot to green fuel. Balrampur and Dhampur Chini are up well over 2% each after opening with 4 per cent plus gains. Biofuel manufacturer Praj Industries also opened higher but has now given up the gains intra-day.

Excise duty is a tax levied by the government on specific goods, including fuel products. By exempting higher ethanol-blended petrol from this tax, the government aims to encourage the production and use of such fuels by making them more economically viable.

What does this mean for you?

The decision is intended to support the wider adoption of cleaner fuel alternatives in the long run. While consumers are unlikely to see any immediate change in fuel prices or availability at petrol pumps, the tax exemption could reduce production costs for higher ethanol blends and encourage their gradual expansion in the market.

Greater use of ethanol-blended fuels could also help lower vehicle emissions and support India’s broader transition towards cleaner energy sources.

Timing is notable

The latest policy change aligns with the government’s efforts to accelerate the adoption of ethanol-based fuels across India. Authorities are preparing to launch between 50 and 100 ethanol fuel outlets in key urban centres, including the Delhi-NCR, Pune, Mumbai and Nagpur, with a target of expanding the network to 500 stations nationwide by the end of 2026.

The push for alternative fuels comes at a time when domestic fuel costs are already under pressure. Since tensions in the Middle East intensified, petrol and diesel prices have risen by more than Rs 7.5 per litre, marking a sharp change after nearly four years of relative price stability.

The latest tax relief follows a regulatory step taken earlier this year, when the Bureau of Indian Standards (BIS) introduced specifications for E22, E25, E27 and E30 petrol blends under the IS 19850:2026 framework. Effective from May 15, 2026, the standards establish key quality and safety benchmarks, including ethanol concentration, octane levels, sulphur content and testing protocols.

With fuel specifications now in place and excise duty removed on these blends, the government has laid the groundwork for expanding the use of higher-ethanol fuels across the country.

India relies heavily on imported crude oil to meet its energy requirements. Expanding the use of domestically produced ethanol – made from agricultural feedstocks such as sugarcane and food grains, can help reduce dependence on imported fossil fuels and limit exposure to fluctuations in international oil prices.

The move is also aligned with the country’s clean energy goals and efforts to create additional income opportunities for farmers by increasing demand for crops used in ethanol production.

Finance Ministry has decoded this further. Here’s what the official notification says:

S. No.	Tariff Item	Description of Goods	Rate
5E	2710 12	22% ethanol blended petrol consisting, by volume, of 78% motor spirit (petrol) on which appropriate excise duties have been paid and 22% ethanol on which applicable Central, State, Union Territory, or Integrated tax has been paid; conforming to BIS specification IS 19850.	Nil
5F	2710 12	25% ethanol blended petrol consisting, by volume, of 75% motor spirit (petrol) on which appropriate excise duties have been paid and 25% ethanol on which applicable Central, State, Union Territory, or Integrated tax has been paid; conforming to BIS specification IS 19850.	Nil
5G	2710 12	27% ethanol blended petrol consisting, by volume, of 73% motor spirit (petrol) on which appropriate excise duties have been paid and 27% ethanol on which applicable Central, State, Union Territory, or Integrated tax has been paid; conforming to BIS specification IS 19850.	Nil
5H	2710 12	30% ethanol blended petrol consisting, by volume, of 70% motor spirit (petrol) on which appropriate excise duties have been paid and 30% ethanol on which applicable Central, State, Union Territory, or Integrated tax has been paid; conforming to BIS specification IS 19850.	Nil

Key points from the notification

-This extends the nil excise duty exemption to higher ethanol blends (E22, E25, E27, E30) that meet BIS standards.

-It amends the existing table in the Central Excise notification.

-The goal is to promote higher ethanol blending to reduce crude oil imports and support the ethanol blending programme.

No immediate impact on regular petrol

The exemption applies only to petrol blended with 22% to 30% ethanol. No changes have been announced for regular petrol currently sold at fuel stations.

However, the measure is expected to encourage greater production and availability of higher ethanol-blended fuels over time, supporting the government’s long-term biofuel and energy transition strategy.

Why is India betting big on ethanol?

India continues to rely heavily on overseas suppliers to meet its crude oil demand, resulting in a substantial import bill each year. To reduce this dependence, policymakers have increasingly promoted ethanol blending as part of the country’s long-term energy strategy.

Emphasising the benefits of alternative fuels, Union Road Transport and Highways Minister Nitin Gadkari recently said that a large share of the country’s fossil fuel needs is met through imports. He noted that the government’s approach focuses on replacing imports with locally produced, cleaner and more affordable fuel options.

According to Gadkari, greater use of ethanol can help lower vehicle emissions while ensuring that money spent on fuel stays within the domestic economy. He added that the shift could generate economic opportunities across rural India, benefiting farmers, agricultural industries, workers and tribal communities.

Put simply, increasing the ethanol content in petrol can reduce the need for imported crude oil while boosting demand for crops and other raw materials used to produce biofuels in India.

“The biggest thing is that pollution will be less because this is a green fuel. The money that goes abroad for fuel imports will remain in the country and benefit farmers, rural youth, labourers, tribal communities, and the agriculture sector,” he added.

The ongoing debate over ethanol use

Despite the government’s strong push for ethanol-blended fuels, the transition has sparked debate among consumers and industry observers. When E20 petrol was introduced across the country, some motorists questioned whether their vehicles were fully compatible with the new fuel and expressed concerns about mileage and long-term engine performance.

The issue eventually made its way to the courts. In September 2025, the Supreme Court declined to interfere with the nationwide implementation of E20 fuel. During the hearing, the Centre defended the policy, arguing that extensive assessments had been conducted before rollout and that the programme would also support the livelihoods of sugarcane growers.

The government also stood by its decision not to offer a separate supply of conventional petrol alongside E20, stating that the shift to higher ethanol blending was part of a carefully planned strategy.

Automobile manufacturers later sought to reassure vehicle owners. According to the Society of Indian Automobile Manufacturers, while certain older vehicles could see a slight drop in fuel efficiency when using E20, the fuel does not raise safety concerns.

Gadkari has likewise defended ethanol-based fuels, highlighting the growing availability of flex-fuel vehicles capable of running on both petrol and ethanol. He has argued that ethanol delivers performance levels comparable to traditional fuels and should not be viewed as a lesser alternative.

Fuel pricing remains another area of discussion. Many consumers expect ethanol-blended petrol to be cheaper because it contains less conventional fuel. However, official figures suggest the economics are more complex. Government data released last year indicated that the average procurement cost of ethanol had exceeded the cost of refined petrol. As of July 31, 2025, ethanol purchased for the 2024-25 ethanol supply year carried an average cost of ₹71.32 per litre, including transportation expenses and GST.

As a result, expectations that higher ethanol blending will automatically lead to lower fuel prices have not always matched the underlying cost structure.

All you need to know about E85

The tax incentive follows another significant development in India’s biofuel programme, the recent introduction of E85 fuel, which has one of the highest ethanol concentrations available in the domestic market.