The Union government has urged the Delhi administration to reduce the value-added tax (VAT) on aviation turbine fuel (ATF) from 25% to 4%, highlighting that 25 other states and Union territories, including Uttar Pradesh, have significantly lower levies. Uttar Pradesh, which is set to operationalise the new – Noida international airport, recently slashed its VAT on jet fuel to enhance competitiveness.
In a letter dated March 19, Civil Aviation Minister Ram Mohan Naidu appealed to Delhi Chief Minister Rekha Gupta to rationalise VAT rates in line with other states. However, no such reduction was proposed in the Budget presented by Gupta on Monday.
Naidu emphasised that civil aviation is highly price-sensitive and directly impacts tourism, economic growth, and employment. He noted that ATF prices form a major part of airline operating costs, and high taxes make Delhi airport less competitive. The Ministry of Civil Aviation has long advocated for bringing ATF under the Goods and Services Tax (GST) framework to eliminate tax disadvantages faced by domestic airlines compared to foreign carriers.
According to Hindustan Times, the letter read, “The price of ATF is a major component of the operating cost of airlines, and the tax on ATF significantly contributes to the ATF price. The Ministry of Civil Aviation has been emphasizing the need for the Goods and Services Tax (GST) Council to consider bringing Aviation Turbine Fuel (ATF) within the ambit of GST at the earliest. For the continuing financial health of domestic airlines, it is important to eliminate the tax disadvantage faced by them compared to competing foreign carriers.”
“Our ministry has also pursued the matter of reducing VAT on ATF. Currently, 25 states/UTs have reduced VAT on ATF to around 1%-4%, signalling their interest in attracting air connectivity to their states,” the minister stated, adding that “Delhi continues to be one of the few states/UTs with a high rate of 25% VAT on ATF for general flights, which needs to be rationalised to align with other states, i.e., in the range of 1%-4%,” the letter added.
VAT on ATF reduced in 25 states and Union territories
Currently, 25 states and Union territories have reduced VAT on ATF to between 1% and 4%, incentivising air connectivity. Naidu pointed out that Delhi remains among the few regions maintaining a high 25% VAT on jet fuel, putting it at a competitive disadvantage.
He also referenced Uttar Pradesh’s decision in December 2024 to cut VAT to 1% for Noida Airport, warning that this could shift airline operations away from Delhi’s Indira Gandhi International (IGI) Airport, impacting fuel sales and government revenue.
Echoing these concerns, the Air Travellers Association sent a similar request to Delhi Governor Vinay Kumar Saxena on March 17. Additionally, on March 24, Manish Singhal, Secretary General of ASSOCHAM, wrote to Naidu, warning that Delhi’s high VAT could drive airlines to relocate operations to Noida, making IGI Airport less competitive.
While industry experts acknowledge the potential benefits of a VAT reduction, they remain skeptical about airlines passing on cost savings to passengers. Aviation consultant Mark D Martin pointed out that with rising operational costs and the weakening rupee, airlines are unlikely to lower fares despite a tax cut.