VAT on petrol will be reduced from 30 to 26 per cent and on diesel from 22 to 18 per cent, Raje announced at a public meeting organised in Rawatsar in Hanumangarh district as part of her 'Rajasthan Gaurav Yatra'.
The decision will cost the exchequer Rs 2,000 crore and will provide the people a relief of Rs 2.5 per litre on petrol and diesel.
"We have decided to reduce VAT on diesel and petrol by 4 per cent, which will provide much-needed relief to the people of the state, be it farmers or women or others," Raje told reporters in Rawatsar after making the announcement.
Petrol and diesel prices set new records Sunday as they continued their upward march on fall in rupee and surge in global crude oil rates.
The opposition Congress has called for a nationwide shutdown on Monday over rising fuel prices and depreciation of the rupee.
Targeting the Congress, the chief minister said that the party had failed to play the role of an effective opposition and came out of its shell just before the election. Assembly election in Rajasthan is scheduled for later this year.