As crude oil crosses $100, aviation ministry renews push to bring jet fuel under GST

India’s aviation ministry has renewed its push to bring aviation turbine fuel (ATF) under the goods and services tax (GST) regime as global crude prices climb past $100 a barrel, intensifying cost pressures on airlines.

The finance ministry has received a fresh proposal seeking the inclusion of jet fuel under GST, a government official told Moneycontrol on April 7. The move marks the latest attempt to address what industry executives have long described as one of the biggest structural cost challenges in Indian aviation.

Fuel costs back in focus as crude rises

The renewed urgency comes against the backdrop of sharply rising crude oil prices, driven in part by geopolitical tensions linked to the Iran conflict. According to Moneycontrol, benchmark crude was hovering around $110 per barrel, while the Indian crude basket stood at $130.93 per barrel as of April 2, citing data from the Petroleum Planning and Analysis Cell.

Fuel accounts for a significant share of airline operating costs, and ATF remains one of the largest expense components for carriers. Industry stakeholders have repeatedly argued that high and uneven state-level taxes inflate costs and distort pricing across regions.

A long-pending reform regains traction

The inclusion of ATF under GST has been debated for years, but previous proposals failed to gain traction. The latest push signals a shift in momentum, with sources indicating the matter could be taken up at the next GST Council meeting.

Aviation stakeholders have consistently highlighted that state-level value-added tax (VAT) on ATF—often significantly higher than GST rates—adds to operational burdens. According to media reports, some states such as Gujarat and Karnataka reduced VAT on ATF from 18 percent to 5 per cent in 2022, but a uniform national framework remains absent.

Bringing ATF under GST is widely seen as a structural reform, as it would allow airlines to claim input tax credit and reduce cascading taxes. However, it also requires agreement among states, many of which rely on VAT from jet fuel as a key revenue stream.

“This issue has been under discussion for a long time, but earlier proposals did not move forward,” a source told Moneycontrol, adding that the current environment has revived interest across the aviation ecosystem.

Limited relief amid rising prices

In the absence of a broader tax overhaul, the government has taken interim steps to cushion the impact of rising fuel prices. Authorities recently capped the increase in ATF prices for domestic airlines at 25 per cent, significantly lower than the rise suggested by global benchmarks.

Public sector oil marketing companies implemented a partial hike of around ₹15 per litre for domestic carriers, offering some relief but not fully offsetting global price pressures.

ATF prices in India have been deregulated since 2001 and are revised monthly in line with international benchmarks, leaving airlines exposed to global volatility.

Decision hinges on GST Council consensus

Any final decision will rest with the GST Council, which must formally recommend the inclusion of ATF under the tax framework. Timelines for the next meeting remain uncertain, with sources indicating it could take place after upcoming state elections.

The council is empowered to determine when GST may be applied to petroleum products, including ATF, but reaching consensus remains complex given competing fiscal interests.

For now, the proposal signals renewed policy attention to aviation cost structures, even as the sector navigates volatile fuel prices and broader economic pressures.

Whether this latest push translates into reform will depend on political alignment as much as economic necessity.