Modi government wants these states to cut VAT on ATF
What's the story
The Civil Aviation Ministry is in talks with the Delhi, Tamil Nadu, West Bengal, and Maharashtra governments to cut value added tax (VAT) on aviation turbine fuel (ATF). The move comes as ATF prices hit a record high of ₹2.07 lakh per kiloliter. The proposal includes either a temporary VAT reduction or airport-specific relief at major hubs like Delhi and Mumbai.
Proposal
Two options proposed for VAT reduction
The Civil Aviation Ministry has proposed two options to the four states. The first is a blanket VAT cut for three or six months across the state. The second is a more targeted approach, where VAT would be reduced only at certain high-traffic airports like Delhi's Indira Gandhi International Airport and Mumbai's Chhatrapati Shivaji Maharaj International Airport, without any need for a statewide policy change.
Tax rates
States with highest ATF taxes
The four states under discussion are among those with the highest ATF taxes in India. Tamil Nadu has the highest VAT at 29%, followed by Delhi at 25% and Maharashtra at 18%. The talks are seen as a major step toward providing relief to Indian airlines, which have been reeling from the West Asia crisis that pushed jet fuel prices to record highs last month.
Price surge
Urgent need for intervention
The urgency of these talks comes from an unprecedented fuel price shock in Indian aviation. ATF prices for domestic airlines have risen by some 8.5% since April 1, taking the price in Delhi from ₹96,638 per kiloliter to about ₹1.04 lakh per kiloliter. This is a huge jump but still pales in comparison to the 115% hike applicable for the international carriers, non-scheduled operators, and charter flights where prices have crossed ₹2.07 lakh per kiloliter.
Supply chain impact
West Asia conflict's impact on fuel prices
The West Asia conflict that escalated on February 28 has disrupted global oil supply chains and sent international jet fuel prices soaring by over 130% month-on-month. The Ministry of Petroleum, in coordination with the Civil Aviation Ministry, has directed oil marketing firms to implement only a partial staggered increase of around ₹15 per liter for domestic scheduled carriers.
Cost impact
Rising operating costs for airlines
According to ICRA, ATF makes up 30-40% of an Indian airline's total operating costs. At current prices, that share has increased significantly. Unlike fuel prices in many other nations, India's jet fuel prices come with a heavy state-tax component that is entirely out of the Centre's control. This has further complicated the situation for domestic carriers amid rising ATF costs.
Relief measures
Government's response to rising ATF prices
The VAT talks are part of a broader government response to the rising ATF prices. The Ministry of Petroleum and Natural Gas and the Civil Aviation Ministry jointly capped the domestic ATF price pass-through at 25%. This means airlines on domestic routes absorbed the remaining cost instead of passing on the full 115% increase to passengers. No such cap was applied for international routes.