Windfall tax on aviation fuel, petrol and diesel scrapped. How does this impact you, firms and economy?

The Finance Ministry has scrapped windfall tax on aviation turbine fuel (ATF), crude products, petrol, and diesel. The decision was formalized through notifications numbered 29/2024 and 30/2024, which were laid in Parliament.

Imposed in July 2022, the windfall tax—formally known as Special Additional Excise Duty (SAED)—was introduced during a surge in global crude oil prices triggered by the Russia-Ukraine conflict. 

The tax aimed to capture extraordinary profits reaped by oil producers and exporters, generating substantial revenue for the government during the pandemic years. The withdrawal of windfall taxes, a source told BT, reflects declining revenues, with ₹25,000 crore collected in FY23, ₹13,000 crore in FY24, and just ₹6,000 crore in FY25, highlighting its necessity only during the COVID period.

With crude oil prices stabilizing at $70-$75 per barrel, far below their peaks, the rationale for the tax has waned. Analysts highlight a significant decline in government revenues from the tax, with ₹25,000 crore collected in FY23 dropping to ₹6,000 crore in FY25.

The scrapping of the tax is expected to benefit major oil producers like Reliance Industries and ONGC by lifting their refining margins. Shares of Reliance were already trading positively, reaching ₹1,300.05 per share shortly after the announcement.

The government has also eliminated the Road and Infrastructure Cess (RIC) on exports of petrol and diesel, marking a complete rollback of the levies on fuel exports.

The windfall tax was last revised on August 31, when it stood at ₹1,850 per tonne for crude petroleum. Export duties on diesel, petrol, and jet fuel had been reduced to nil as of September 18.

The removal of the windfall tax could have significant implications for consumers and businesses. Airlines might see reduced operational costs, potentially translating to lower airfares. Similarly, oil companies could consider lowering prices for petrol, diesel, and ATF, offering some relief to consumers amid concerns over inflation.

This development underscores India’s adaptive fiscal policy, designed to address changing market conditions while supporting domestic industries and consumer needs. The scrapping of the tax marks a shift towards fostering economic growth in the energy sector.