Will Delhi, Mumbai's VAT Cut On Jet Fuel Will Benefit Airlines, Passengers?

Delhi and Mumbai have recently reduced value-added tax (VAT) on aviation turbine fuel (ATF), a move that could lower operating costs for airlines and possibly help reduce air ticket prices.

The Delhi government has cut VAT on jet fuel from 25 percent to seven percent for six months. Mumbai has also reduced the tax on ATF from 18 percent to seven percent for domestic flights.

The move comes as airlines continue to face pressure from high fuel costs.

Jet fuel is one of the biggest expenses for airline companies, making up to 50-60 percent of their operating costs.

Industry experts believe the reduction in tax could improve airline margins and make some routes more financially viable.

Lower ATF taxes may especially benefit airlines operating long-haul flights from Delhi and Mumbai.

The two airports are the busiest in the country.

The latest relief is crucial for aviation companies reeling under the pressure of the West Asia war, increased jet fuel prices, and longer international routes due to the closure of certain airspaces.

Airlines could increase flight operations from these airports because of the lower fuel costs.

However, experts said the impact on ticket prices may not be immediate or significant because fares are influenced by several factors such as demand, competition, and overall operating costs.

Airlines have been demanding lower taxes on aviation fuel for years, arguing that high ATF taxes in India make operations expensive compared to many other countries.

ATF is currently outside the Goods and Services Tax (GST) system, which means state governments impose their own VAT rates. This leads to wide differences in fuel prices across states.

Industry bodies have repeatedly requested the government to bring ATF under GST to create a uniform tax structure and reduce costs for airlines.

Lower fuel taxes could help airlines improve connectivity, increase capacity, and strengthen the aviation sector.