However, fuel will cost Rs 5 per litre lesser with immediate in six states - Uttar Pradesh, Gujarat, Maharashtra, Chhattisgarh, Tripura and Assam - where state governments have further cut Value-Added Tax by Rs 2.50 per litre. PM Modi expressed concerns over rising fuel prices in the season of Rabi crops.
He also asked state governments to follow suit and cut taxes by a similar amount. The BJP-government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47 a litre in nine instalments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October previous year by Rs 2 a litre.
Fuel prices have been consistently hitting record highs since mid-August.
Maharashtra chief minister Devendra Fadnavis said that his government also chose to make a matching cut as this would be a "great relief" to the people.
Bihar deputy chief minister Sushil Modi said the BJP-JD (U) government in the state will see the order by the finance minister before taking a decision.
On the centre's recommendation to the states, Jaitley said: "Now all states will be on test".
By lowering duties, the Narendra Modi government is borrowing a page from the rulebook of past governments that have lowered levies whenever global oil prices shot up. In a tweet he said, "Madhya Pradesh has also reduced VAT [Value Added Tax] on fuel as a result of which the people will get a relief of Rs 5".
"Reciprocating positively to FM's announcement, the Govt Of Gujarat has also chose to reduce Rs 2.50 on both petrol & diesel". The prices of petrol are maximum across the state, soaring above Rs 91 in many districts of the state.
Additionally, oil companies are to be asked to absorb another Re 1 per litre.
In a boost to oil companies, the Reserve Bank of India (RBI) on Wednesday eased the overseas borrowing norms by up to $10 billion. "The cut makes petrol and diesel prices cheaper by Rs 5 in the state". Of this, IOC's share would be roughly half and the rest split equally between HPCL and BPCL.
Brent oil on Wednesday crossed $86 per barrel, which is the highest in the last four years, and rising interest rates in the USA have a significant impact across global markets, said Jaitley. Nearly half of the fuel price is made up of taxes.
The Congress leader dubbed as "lies" Jaitley's claim that the tax base has risen under the NDA government and said the buoyancy in taxes is due to money collected through rise in excise duty on petrol and diesel in the last 52 months.