Centre asks states to reduce ATF VAT as fuel prices surge and fares set to rise

The Centre has urged state governments to reduce Value Added Tax (VAT) on aviation turbine fuel (ATF) as rising global fuel prices threaten to push up airfares, according to India Today.

Civil Aviation Minister Ram Mohan Naidu has reached out to multiple Chief Ministers, seeking tax relief to ease cost pressures on airlines and passengers ahead of an expected revision in ATF prices from April 1.

FUEL PRICE SURGE DRIVES GOVERNMENT INTERVENTION

The appeal comes amid a sharp rise in global jet fuel prices linked to the ongoing West Asia conflict.

According to data cited by India Today from the International Air Transport Association (IATA), ATF prices have nearly doubled—from $99.40 per barrel on February 27 to $195.19 per barrel by March 27.

The spike is expected to increase operating costs for airlines, with a direct pass-through impact on ticket prices.

STATES HOLD KEY TO COST RELIEF

Unlike many other fuels, ATF is taxed at the state level, leading to wide variation in VAT rates across India.

Sources in the Ministry of Civil Aviation told India Today that states such as Delhi impose VAT as high as 25%, while Maharashtra levies around 18%. Tamil Nadu, currently heading into elections, reportedly has one of the highest rates at 29%.

The Centre has argued that reducing these taxes could provide immediate relief to airlines struggling with rising input costs.

“States should cut VAT in the wake of the West Asia conflict,” a ministry source told India Today, adding that discussions with state officials are ongoing.

AIRLINES BRACE FOR FARE INCREASE

Industry stakeholders have been pressing for tax rationalization for weeks, warning that sustained high fuel costs could make air travel more expensive.

Fuel typically accounts for 30–40% of an airline’s operating costs, making ATF price fluctuations a critical factor in fare pricing.

With ATF prices rising and tax burdens remaining high, airlines are expected to pass on a portion of the cost increase to passengers, particularly on domestic routes.

IMPACT ON TRAVEL AND BUSINESS MOBILITY

The potential rise in airfares could have broader implications beyond leisure travel.

Higher ticket prices may affect business travel budgets, corporate mobility, and regional connectivity, particularly in a price-sensitive market such as India.

The Centre is continuing discussions with state governments in the hope of reaching a consensus on tax reductions.

Any decision to cut VAT will rest with individual states, making the outcome uncertain and potentially uneven across regions.

In the near term, however, the trajectory is clear: with fuel prices rising sharply, airfares are likely to follow, unless tax interventions provide relief.

For airlines, the challenge will be balancing cost recovery with demand sensitivity. For passengers and businesses, the coming months may test how much higher ticket prices the market can absorb.