Top officials, including the Chairman of the Petroleum and Natural Gas Regulatory Board (PNGRB), are persuading over a dozen states to rationalise VAT on natural gas and CNG, a measure critical for an inclusive market and affordable access to cleaner fuels.
States generate revenue by levying Value Added Tax (VAT) on the sale of natural gas, piped natural gas (PNG) and compressed natural gas (CNG).
The PNGRB leadership has held several deliberations with Chief Ministers, Lt. Governors, or Chief Secretaries of more than a dozen states, including Himachal Pradesh, Uttarakhand, Madhya Pradesh, and Uttar Pradesh, it said.
“These high-level engagements focused on key policy and operational issues critical to the city gas distribution (CGD) sector. The discussions emphasised the importance of rationalising VAT on domestic natural gas and CNG to make clean fuels more economically viable for consumers,” the oil and gas sector regulator added.
Over the past two years, PNGRB’s sustained efforts and continued dialogue with states have led to VAT reductions on natural gas in AP, Assam, Bihar, Chhattisgarh, Rajasthan, Dadra & Nagar Haveli and Daman & Diu.
Challenges to uniform growth
The regulator emphasised that high and differential VAT rates on natural gas across states pose a significant challenge to uniform growth and affordability of the ecosystem.
These disparities create an uneven playing field, discouraging investment in states with higher tax rates and ultimately affecting the end-user prices for both domestic and commercial/industrial consumers.
For comparison, while some states levy VAT as low as 5 per cent on natural gas, others impose rates exceeding 20 per cent, leading to substantial cost variations.
The selling price of Domestic PNG in India varies from around Rs 45 per standard cubic meter (SCM) in Tripura to Rs 63 in Uttarakhand. Similarly, CNG price varies from roughly Rs 74.60 per kg in Puducherry to Rs 103.80 in Uttarakhand.
Rationalising VAT is critical for fostering a stable, competitive and inclusive natural gas market, which is essential for accelerating India’s clean energy transition and ensuring affordable access to sustainable fuel for consumers, PNGRB said it impressed upon the states.
Citing instances, the regulator provided the example of Bihar, which notified a reduction in VAT on CNG and PNG from 20 per cent to 12.5 per cent, and reduced the VAT rate on PNG for industrial use from 20 per cent to 5 per cent. This will benefit about 1.9 crore households and 38.41 lakh potential PNG consumers.
Several benefits
Overall, the reduction in VAT would lead to higher gas consumption, enhance the viability of the CGD network, support industrial competitiveness, and contribute to cleaner air and energy sustainability.
For instance, rationalising VAT and implementing effective CGD policies by states have boosted the adoption of CNG vehicles, with the number on the road rising steadily from 58.61 lakh in March 2023 to 81.95 lakh by March 2025.
“As per the Vahan Dashboard, a growth of nearly 25 per cent in CNG vehicle registrations was recorded in FY25 compared to FY24. This translated into an increase of around 21 per cent in gas sales in FY25, along with the addition of approximately 1,206 CNG stations across the country,” the regulator pointed out.
This consistent rise indicates strong adoption of CNG vehicles, driven by increasing demand for cost-effective and environmentally friendly transportation alternatives.
PNGRB has also been actively promoting the adoption of PNG as a clean and sustainable fuel. In FY25, around 21 lakh new domestic PNG connections were added, contributing to an 11 per cent increase in gas sales pan-India.