The Maharashtra government has reduced Value Added Tax (VAT) on aviation turbine fuel (ATF) to 7% from the earlier 18%, offering relief to airlines struggling with sharply rising fuel costs amid the ongoing West Asia conflict.
The move will remain in effect till November 14, according to a government order reviewed by The Economic Times.
The decision comes at a time when following the war in West Asia and disruptions in global energy supply chains.
Fuel is one of the biggest expenses for airlines and accounts for nearly 35-40% of an airline’s operating costs. The tax reduction is expected to lower refuelling costs at Mumbai airport, which is India’s second-busiest airport after Delhi and handles around 15% of the country’s air traffic. Pune and Nagpur are also expected to benefit from the move.
According to the report, the Ministry of Civil Aviation had been pushing states such as Maharashtra, Delhi, Tamil Nadu and West Bengal to reduce VAT on jet fuel, as these states levy some of the highest taxes on ATF in the country.
The move also makes Mumbai more competitive compared to Delhi, where VAT on jet fuel remains at 25%, the report said.
The . As per the report, average global jet fuel prices rose to USD 162.89 per barrel for the week ended May 8, compared to USD 99.40 per barrel at the end of February.
Airlines have long argued that India’s tax structure makes jet fuel unusually expensive because VAT is charged as a percentage of fuel prices instead of a fixed amount. This means taxes automatically rise when crude oil prices increase globally.
The industry has also repeatedly demanded that aviation turbine fuel be brought under the GST regime, which would allow airlines to claim input tax credit on fuel purchases and reduce operational costs.
The tax relief comes at a crucial time for the aviation industry. Tata Group-owned Air India recently announced a temporary reduction in some international services for three months due to soaring fuel prices, while also warning that more cuts may follow if jet fuel prices remain elevated.
The latest decision by Maharashtra is expected to provide some short-term relief to airlines as they continue dealing with expensive fuel, geopolitical uncertainty and pressure on operating margins.