Aviation turbine fuel is likely to be brought under the Goods and Services Tax in the near future, said Union Minister of Petroleum and Natural Gas Hardeep Singh Puri. He further stated that natural gas is also under consideration for GST inclusion.
During a press briefing at a curtain-raiser event for India Energy Week 2025, Puri stated that the GST Council, which comprises the Finance Minister and State Finance Ministers, is actively considering the matter. "Our sense from the last GST meeting was that ATF is likely to come under GST soon," he said.
Though he refrained from specifying a timeline, adding only that it would happen "sooner rather than later."
Currently, ATF attracts an 11% central excise duty, with a concessional 2% rate for regional connectivity scheme routes and varying VAT rates across different states. Inclusion under GST could benefit the civil aviation industry by reducing the cascading effect of taxes.
At present, ATF manufacturers cannot claim input tax credits for GST paid on inputs, which increases the final cost. Puri emphasised, "If you bring something under GST, you will not lose. In fact, it will be a win-win for you," drawing on his experience as a former Civil Aviation Minister.
In addition to ATF, natural gas is also being considered for GST inclusion. States like Gujarat, Maharashtra, and Andhra Pradesh, which were initially hesitant, are now recognising its potential advantages. "They are more or less seeing the benefits," Puri remarked, though he did not provide a definitive timeline.
Current Tax Structure
Currently, ATF is subject to an 11% central excise duty, reduced from 14% in September 2018, with a concessional 2% rate applied to routes under the Regional Connectivity Scheme or UDAN.
Additionally, state VAT on ATF varies widely, ranging from 1% to 29%, and can differ even between airports within the same state.
For UDAN routes, state VAT is further reduced to 1-4%, while international airlines are exempt from taxes on ATE.
Despite the central government's recent efforts to encourage states to lower VAT on ATF, rates in major metro airports remain high, such as Kolkata at 25%, Chennai at 29%, Delhi at 25%, and Mumbai at 18%.
Hence, airlines face a total blended tax rate of approximately 25-27%, significantly impacting their operating costs.
Whom Will It Benefit?
If ATF is brought under the GST, the impact on companies with significant domestic operations will depend on the applicable GST rate and the availability of input tax credit.
Assuming an 18% GST rate, airlines such as IndiGo, with 72% domestic operations, and SpiceJet, with 80% domestic operations, could benefit from a 7-9 percentage point reduction in total fuel costs. However, the actual reduction in fuel cost per available seat kilometre, or CASK, would be lower.
If a 28% GST rate is applied without input tax credit, there would largely be no benefit for airlines. While, if a 28% GST rate is implemented with input tax credit, the GST collected on ticket sales-5% for economy seats and 12% for premium seats-could be adjusted against input tax, providing some relief.
Source from: https://www.ndtvprofit.com/economy-finance/atf-gst-inclusion-expected-soon-hardeep-singh-puri-benefits-civil-aviation
