Petrol (Diesel) Pump Business Ideas Investment Profit
Table of Contents
Like any other business in India, Petrol Pump business too needs some proper education and skill. Along with some government rules and regulation are to be followed like any other normal business. Here in this article one can get a clear idea about how and who can set up petrol pump business. As for the introduction one very important aspect of starting up petrol pumps is that it needs much of a space and appropriate plan that earn profit in long run.
All Rules And Regulations for Getting Petrol Pumps
Who Can Start Petrol Pump Business
Petrol Pump business is definitely not a small scale business set up. It requires much capital, proper strategy, government’s licence and the process which is bit too long, appropriate involvement of investments and so on. There are some minimum eligibility criteria that must be fulfilled by the entrepreneur or company to start petrol pump business.
- The individual must be aged between 21 and 55 years. Also to start up this business in India the owner or dealer must be the citizen of India.
- For the rural retail outlets the minimum educational qualification is higher secondary passed. That is 10+2 cleared people. For the urban locations the individual must be a graduate and above to start petrol pump business. The freedom fighters under CC2 category will not have to follow these eligibilities.
- Along with the above mentioned eligibility another criteria is there for the Limited Liability Partnership companies. LLBs that have more than 40 Lac annual turnover are eligible for this business as this business needs heavy capital investment.
Required Land Area Rules For Petrol Pump
- As mentioned that petrol pump set up needs vast area. First of all one has to choose the location carefully. Petrol pumps must be situated somewhere in the busy location or in a place where no nearby pumps are seen.
- Firstly the dealer can find a land in the middle of the city for urban retail outlets or they can have a piece of land in rural areas for rural retail outlets. However the best place for having a retail outlet is in highways.
- Highways have limited amenities or provisions unlike cities or general localities. Not many pumps are found in highways in frequent intervals. So it will be profitable to set up a pump in national highways or state highways.
- As far as the land is concerned the ownership of the land is important. As petrol pump business requires a lot of paper work with the government, it is necessary to have proper documents of the land. If the owner of the pump does not own any land he/she can opt for long term lease as well. Summing up the details one can say that having a large piece of land and hefty investment any private limited company can set up petrol pumps.
Minimum Fund / Cost In the Business
Setting up petrol pump is no joke. Along with lump sum amount of investment it takes a lot of documentation and paper work beforehand. This adds up the cost of setting up the business. Investment or cost of petrol pump business depends highly on the location you choose for setting it up.
Minimum fund one must have to start petrol pumps in Rs. 12 Lac for the rural locations and Rs. 25 Lac for the urban locations. This fund can be saved in anywhere such as national saving certificate, bons, shares, saving account, mutual funds and such. For bonds, shares and mutual funds only 60% of the total investment will be considered as fund under this business.
All Expenses and Investment In Petrol Pump Business In India
The overall investment needed for the petrol pump business is minimum of Rs. 50 Lac to 60 Lac in rural location and for urban it can reach up to Rs. 2 Cr. Here is the list of costs associated with the business.
- Land: Firstly the area of concern is the land. If the owner owns the land then there will not be any explicit cost added to the expense. Lands that are on lease will incur some one time explicit cost.
- Machines: Every pump needs to have at least two machines, one is for the diesel and other one is for the petrol. These machines cost nearly Rs. 10 Lac each. Hence Rs 20 Lac is needed for the machine installation.
- The sales room: There must be a sale’s room in every pump. That must be set up in a proper way. The cost of setting up moderate sales rooms is approximately Rs. 10 Lac.
- Canopy and drive way: For both of them 10lac each will be needed. That means 20 Lac for the canopy and at least 700+ sq meter area of drive way in the petrol pump.
- Underground Tank: Lastly the cost of underground tanks will cost approx 5 Lac. For two tanks (one for petrol and one for diesel) total cost will be 10 Lac approximately.
- Other expenses: Documents, license fees and other retail expenses must be added. These expenses depend on various things like authority, location and such.
Dealers’ Commission on Petrol
As per the latest report, the dealers get Rs. 2.58 per litre on petrol from the petrol pump owners. On the other for the diesel the rate is quoted as Rs. 2.60 per litre. Most of the leading fuel companies provide this amount as commission.
Petrol Pump owners get Rs. 202.38/- per KL (kilo-litre) and also they get 0.89% extra on the retail petrol price. This commission is quoted for petrol price. For the diesel price the commission rate is Rs. 1502.13 plus additional 0.27% of the retail price.
Profit of margin in Petrol Pump Business in India
- Normally people think that petrol pump businesses incur a lot of revenue. In a way it is partially correct. The revenue from the business is significantly high. However the cost of business is high too. Hence the profit margin is not as much as it looks like. For a normal petrol pump the profit margin shows 1.8% or so as a whole. It means selling of 1 litre of petrol incurs Rs. 1.8 profit margin.
- If for example a pump sells 400 Kilo-litre fuel and makes revenue of 10Lac. He has to spend nearly Rs. 6 Lac as the cost of production. Wages, maintenance, electricity, interest and other factors will cost approximately 6 Lac. The rest amount will be the pre-tax profit.
- After deducting the tax, the net profit shows Rs. 2-2.5 Lac per month that is Rs. 24 to 30 Lac per annum.
How to apply for Petrol Pump License
To start up petrol pump business it is mandatory to register the company and issue a licence. As mentioned that the business comes with many risks due to use of hazardous and explosive chemicals it is needed to get legal licence before you start working.
To apply for the license one has to check on the advertisement or the notice published by the fuel companies in India. The details regarding the location, requirement and eligibility must be mentioned in the official notice by the company. Depending on the requirements the companies can apply for the license online or offline.
In the first step the mentioned eligibility criteria must be fulfilled. After that in the second stage bidding takes place by the dealers and entrepreneurs. Depending upon them the licensing process happens.
Documents for license In Petrol Pump Business
- There are few documents that are to be submitted while applying for the licence. First of all the application form must be submitted with mandatory information.
- Land papers should be legal and up to date. If it is privately owned land or it is on lease, all the valid and legal papers should be submitted.
- Business and fund related papers are required to show the turnovers and fund that the dealer has while applying for the licence. Also bank details must be submitted.
- Income Tax returns, VAT registration papers and now GST registration documents are required. The application fee must be paid via demand draft. That DD should be given.
Petrol Pump Dealership List and Official Link
The leading fuel companies in India and their dealership list is as follows:
- Hindustan Petroleum Corporation Limited (HPCL) – Official link http://www.hindustanpetroleum.com/retailpetrolpumpdealership.
- Bharat Petroleum Corporation Limited (BPCL) – Official Link https://www.bharatpetroleum.in/dealer/dealerSection.asp.
- Indian Oil Corporation Limited (IOCL) – Official Link https://iocl.com/home.aspx?aspxerrorpath=/Talktous/Guidelines.aspx
- Essar Petrol Pump (Essar Group) – Official Link http://www.essar.com/section_level3.aspx?cont_id=tyN/VXziEDc
How to Apply for a Petrol Pump Dealership
There are two ways to apply for the dealership, online and offline. All the leading fuel companies publish public notice on newspapers referring the details of the dealership. Dealers can follow the offline process to apply. Or they can visit the official website of the preferred fuel company to look for the online process to apply. Dealers can check the ads and proceed with the issuing licence and so on for the dealership.
License and Application Fee for Petrol Pumps
For the rural locations the application fee for each Retail Outlet is Rs. 100/-. On the other for the urban location the fee is Rs. 1000/- for each retail Outlet. One cannot apply for more than one RO. For the reserved candidates like SC or ST the application fee is Rs. 50/- and Rs. 500/- respectively. The licence fee is Rs. 18 per kilo-litre for Motor Spirit and for the High Speed diesel it is Rs. 16 per kilo-litre. This rate is for the dealers in DD / B areas. On the other for the A / CC areas and for the corporation the rate is Rs. 41 per kilo-litre for MS and Rs. 44 per kilo-litre for HSD.
VAT Registration for Petrol Pump
To opt for petrol pump business VAT registration is must. Individuals can register Value Added Tax with the help of state tax authorities. The business incurs high volume of sales so the VAT paid by the individual is much high. VAT registration can be done through online as well.
Taxes in the Business
As said, VAT is one mandatory tax that must be paid in petrol pump business. Apart from VAT, GST (which is mandatory for all now) must be paid. Along with these two, Income Taxes by the dealer or owner and other risk-related tax must be paid by the owner or dealers of petrol pumps in India.
Loan for New Petrol Pump
To get loan for petrol pump business the applicant must own his land. The documents and land papers must be up-to-date. He also has to have all the licence and permits to open a petrol pump before applying for the loan. Along with loan security a guarantor is required. The guarantor must have high net worth. Banks do not provide building or properties for the petrol pump. Only cash credit is available if all the criteria are fulfilled.
Risk In Petrol Pump Business
- Petrol pumps sell highly inflammable products. Working in petrol pumps or running such business can bring any type of hazardous accidents at anytime. The biggest risk associated with petrol pump is to have explosion or fire. Fuel is being stored under the ground. This can be risky if not handled by skilled labour.
- Another risk can be considered related to car wash and cleaning process. There are many chemicals are used in cars. These chemicals can be leaked or exposure can take place while cleaning the cars.
- Another important point to be noted is the driveway. If the pump is located in a busy area, it can be expected that continuously cars will come and go. This can lead to collision or accidents if it isn’t managed properly.
- Other risks such as mishandling of explosive elements, misuse of electricity in the cleaning area, misuse of equipments, robbery (especially in highways) and so on can be considered as risks associated with this business.