Delhi and Mumbai Reduce Aviation Turbine Fuel Tax to 7 Percent: Potential Impact on Air Fares

India's Two Busiest Airports Slash Aviation Tax to Help Airlines Amid West Asia Crisis

Petrol prices have surged twice in a week, but a potential relief signal has emerged on the air travel front. Delhi and Maharashtra, home to India's two busiest airports, have reduced the value-added tax (VAT) on aviation turbine fuel (ATF) to 7 percent each, a move that could ease the financial pressure on airlines battered by the West Asia crisis.

The Delhi government reduced VAT on ATF from 25 percent to 7 percent, effective May 16, 2026, for an initial period of six months. The decision was approved at a Cabinet meeting chaired by Chief Minister Rekha Gupta. Maharashtra moved first, cutting ATF VAT from 18 percent to 7 percent with effect from May 15, 2026, also for six months ending November 14, 2026.

The significance of this tax cut lies in which airports are involved. Delhi's Indira Gandhi International Airport handled nearly 8 crore passengers in 2024-25, making it the country's busiest aviation hub, while Mumbai airport handled 55.5 million passengers in 2025 and recorded over 331,000 aircraft movements. Together, these two airports account for a disproportionately large share of India's airline traffic, premium routes, and long-haul international operations.

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According to data from the Petroleum Planning and Analysis Cell (PPAC), India's ATF consumption stood at around 764 thousand metric tonnes in February 2026. The Directorate General of Civil Aviation (DGCA) reported that domestic airlines carried nearly 167 million passengers in calendar year 2025.

ATF VAT Cut: A Comparative Analysis

The concentration of fuelling activity at Delhi and Mumbai means tax cuts here have an outsized impact on airline economics compared to relief at smaller airports. "ATF contributes nearly 35-40 percent of an airline's operating expenditure in India, and therefore even a modest reduction in VAT can translate into meaningful savings, especially at major hubs such as Delhi and Mumbai," said CK Govil, a former industry official.

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However, the financial damage to airlines from the fuel surge has been severe. Air India has reduced around 100 international flights per day, while IndiGo's net profit fell 77.6 percent year-on-year to Rs 549 crore in Q3 FY26. Airlines are still absorbing months of accumulated losses from the fuel surge.

Industry sources said airlines with extensive domestic networks from Delhi, such as IndiGo, could reap substantial fuel cost savings over the coming months. However, sustained fare reductions would require a more significant resolution of the West Asia conflict and a meaningful drop in global crude prices.

Under the Maharashtra revision, the 7 percent VAT rate applies only to domestic flight operations. International carriers at Maharashtra airports were already exempt from VAT on aviation fuel.

The larger demand from the aviation industry is to bring ATF under the Goods and Services Tax (GST) framework. ATF has remained outside the GST framework since 2017, meaning airlines cannot claim input tax credit on fuel costs. States continue to levy VAT on ATF independently, creating widely varying operational costs across airports, a structure the industry has repeatedly described as distortionary.

The central government has not made any announcement on ATF's GST inclusion.