Prices of domestic cooking gas (LPG) were cut by a steep Rs 120.50 per non-subsidised cylinder and Rs 5.91 per subsidised cylinder on Monday, the second straight reduction in a month’s time due to tax impact on reduced market rate of the fuel.

A 14.2-kg subsidised LPG cylinder will cost Rs 494.99 in the national Capital post Monday midnight as against Rs 500.90, Indian Oil Corp (IOC), the country’s largest fuel retailer, said in a statement. On December 1, subsidised LPG price was cut by Rs 6.52 a bottle.

That price cut had come after six consecutive monthly hikes in rates since June. The two price reductions have mostly negated the Rs 14.13 per cylinder increase in rates between June and November.

IOC said non-subsidised or market priced LPG rates have been cut by a steep Rs 120.50 per cylinder “due to fall in price of LPG in international market and strengthening of US dollar-rupee exchange rate.” It will now cost Rs 689 per 14.2-kg cylinder in Delhi.

On December 1, price of non-subsidised LPG was cut by Rs 133 per bottle.

All LPG consumers have to buy the fuel at market price. The Government, however, subsidises 12 cylinders of 14.2-kg each per households in a year by providing the subsidy amount directly in bank accounts of users.

This subsidy amount varies from month to month depending on the changes in the average international benchmark LPG rate and foreign exchange rate. When international rates move up, the government provides a higher subsidy. And when they come down, subsidy is cut.

As per tax rules, GST on LPG has to be calculated at the market rate of the fuel. The Government may choose to subsidise a part of the price but tax will have to be paid at market rates. So, with the fall in market price or non-subsidised LPG price, the tax incidence on subsidised cooking fuel has also come down, leading to the current price reduction.

“Accordingly, the upfront cash payment by the consumer of domestic LPG will also reduce by Rs 120.50 per cylinder. Domestic LPG consumer will now be required to make upfront cash payment of Rs 689 a cylinder in place of Rs 809.50 per cylinder,” IOC said.

Subsidised cooking gas consumers will get Rs 194.01 per cylinder subsidy in their bank accounts for the month of January. The subsidy transfer in the customer’s bank account has been reduced from Rs 433.66 in November and Rs 308.60 in December.