The Union government has urged the Delhi government to slash the value added tax (VAT) on jet fuel from 25% to 4%, citing lower levies in 25 other states and Union territories, including Uttar Pradesh, which will likely operationalise a new international airport in the national capital region at Greater Noida.
The appeal was made by civil aviation minister Ram Mohan Naidu in a letter dated March 19 and addressed to Delhi’s chief minister Rekha Gupta.
There was no such rate change proposed in the Budget presented by Gupta on Monday.
The minister stated that civil aviation is highly price-sensitive, and at the same time, connectivity directly promotes tourism growth, output growth, and employment, in addition to various indirect benefits to the economy.
His letter, seen by HT, 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 Uttar Pradesh government had, in December 2024, cut VAT on ATF to make Noida Airport a competitive aviation hub, a move Naidu referenced as he expressed concerns about Delhi’s Indira Gandhi International (IGI) airport. “Noida airport in Uttar Pradesh is expected to commence operations soon, and the applicable VAT rate there will be 1% on ATF, compared to 25% on ATF at Delhi airport. This cost disparity will impact Delhi airport, making it uncompetitive and depriving it of a level playing field. This will clearly affect the offtake of ATF at Delhi airport and may impact the revenue of the Delhi government.”
A similar letter requesting reduction on ATF was also sent to Delhi governor Vinay Kumar Saxena by the Air Travellers Association on March 17.
Similar concerns have been raised by the industry. Manish Singhal, secretary general of ASSOCHAM, in a letter on March 24 wrote to Naidu, stating, “Delhi’s 25% VAT on ATF makes the airport less competitive compared to other airports, such as those in UP, which charge only 1% VAT. This discrepancy could cause airlines to shift operations to the new Noida airport, making Delhi less competitive.”
Experts said Delhi has typically had a high VAT by virtue of it being India’s capital city. Mark D Martin, aviation expert and founder of Martin Consulting said if the levy is reduced, is unlikely airlines will pass the cost benefits to customers. “It is less likely that airlines will pass on the cost save benefit on to passengers as current operating costs have shot up owing to the long-term dollar rate soon expected to breach 87 to the rupee,” he added.
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