After Maharashtra, Delhi cuts ATF VAT to 7%

The Delhi government has slashed value-added tax (VAT) on aviation turbine fuel (ATF) from 25% to 7%, becoming the second major state after Maharashtra to reduce jet fuel taxes as airlines battle soaring operating costs and geopolitical disruptions.

The decision was approved by the Delhi Cabinet under Chief Minister Rekha Gupta and is expected to ease cost pressures on carriers operating through the national capital, one of India’s busiest aviation hubs.

The move comes amid mounting concern within the aviation industry over elevated fuel prices, disrupted air routes and rising operational uncertainty triggered by tensions in West Asia.

Airlines gain another tax relief measure

Aviation turbine fuel remains one of the largest cost components for airlines, accounting for a substantial share of overall operating expenditure.

The latest tax reduction is expected to lower fuel expenses for airlines operating flights through Indira Gandhi International Airport in Delhi, which handles significant domestic and international passenger traffic.

The relief arrives at a time when carriers are already dealing with:

• Higher global aviation fuel prices
• Longer flight routes caused by restricted airspace
• Operational uncertainty linked to the West Asia conflict
• Increased fuel burn on international sectors
• Ongoing supply chain and aircraft availability challenges

Industry executives have repeatedly argued that state-level taxes on ATF significantly affect airline profitability and route economics, particularly in a price-sensitive market such as India.

Delhi follows Maharashtra’s aviation tax move

The Delhi government’s announcement comes shortly after the Maharashtra government reduced VAT on ATF from 18% to 7%.

Maharashtra’s revised tax rate came into effect on May 15 and will remain applicable until November 14, 2026.

Together, the two decisions indicate growing momentum among states to support the aviation sector during a period of heightened volatility.

According to multiple media reports, the Ministry of Civil Aviation has been engaging with several state governments, including Tamil Nadu, West Bengal, Maharashtra and Delhi, urging them to reduce taxes on aviation fuel.

The Centre has argued that lowering VAT could help airlines manage rising operational costs and maintain network stability.

West Asia crisis reshapes airline economics

The latest tax relief measures are closely tied to the impact of geopolitical tensions in West Asia, which have disrupted flight operations across several international routes.

Indian carriers have faced growing pressure because of:

• Restricted air corridors
• Longer flying times on international sectors
• Increased fuel consumption
• Rising crew and operational expenses
• Scheduling disruptions across networks

Airlines operating west-bound routes have particularly struggled with rerouting costs as airspace closures and conflict-related restrictions force aircraft onto longer paths.

The result has been a significant increase in operating expenditure across the sector.

The latest VAT reduction is therefore being viewed as an attempt to soften at least part of the financial burden created by the ongoing crisis.

Centre also eases export duties on fuel products

Alongside state-level tax cuts, the Union government has also revised export duties on petroleum products.

On Friday, the Centre announced a reduction in the special additional excise duty (SAED) on ATF exports from ₹33 per litre to ₹16 per litre.

According to the Finance Ministry, export duty on diesel was also reduced from ₹55.5 per litre to ₹23 per litre.

The government had initially imposed export duties on diesel and ATF on March 26 at rates of:

• ₹21.5 per litre for diesel
• ₹29.5 per litre for ATF

These duties were subsequently increased on April 11 before being partially reduced during a review conducted on April 30.

The latest revisions signal a broader effort by policymakers to respond to pressure in fuel markets and aviation operations.

High ATF taxes remain a long-standing industry concern

India’s airlines have consistently pushed for lower taxation on aviation turbine fuel, arguing that high state-level VAT rates weaken financial sustainability.

Because ATF remains outside the Goods and Services Tax framework, individual states continue to impose varying VAT structures.

Before the latest reduction, Delhi had one of the highest VAT rates on aviation fuel among major aviation markets in the country.

The uneven tax system often influences airline fuelling strategies and operational planning, especially for carriers operating large domestic networks.

Industry groups have long argued that rationalising ATF taxation could improve airline margins, support regional connectivity and potentially stabilise passenger fares.

Passenger impact may take time

While lower fuel taxes are expected to improve airline cost structures, it remains unclear how quickly passengers may see any direct fare benefit.

Airlines continue to face several parallel pressures, including volatile fuel markets, aircraft shortages and fluctuating international demand.

However, lower ATF taxation could help carriers better absorb rising operating costs without sharply increasing ticket prices during peak travel periods.

The decision also reflects growing recognition among policymakers that aviation has become a critical economic and connectivity sector requiring coordinated fiscal support during periods of disruption.

With both Delhi and Maharashtra now lowering VAT on jet fuel, pressure may increase on other states with high ATF taxes to consider similar relief measures in the months ahead.