T.N. government contemplates reducing VAT rate on aviation turbine fuel

The Tamilaga Vettri Kazhagam (TVK)-led government is considering reducing State-level Value Added Tax on Aviation Turbine Fuel (ATF).

Currently the tax rate is 29%. “We want to bring this on par with neighboring countries,” says one official. The actual rate is expected to be made public when the state budget is presented.

According to information provided by the Union Ministry of Petroleum and Natural Gas to the Lok Sabha four months ago, Andhra Pradesh charges 1%; Pudukiraz – 14.5%; Telengana – 16% and Karnataka – 18%. As for Kerala, the sales tax rate is 5% with a 1% deduction on tax; also, each of the four airports in the state, including Thiruvananthapuram, Nedumbassery, Kannur and Kozhikode, imposes one per cent tax and one per cent discount.

The Tamil Nadu government’s move comes in response to the Union government’s persistent demand to reduce the tax rate, which is one of the key factors determining the operating cost of airlines.

About two months ago, Maharashtra and Delhi reduced the VAT rate on ATF to 7% from 18% and 25%. In the case of Delhi, the discount will initially be valid for six months, but no such timeline has been envisaged by Maharashtra.

While the developments have been attributed as providing relief to the aviation sector, which is grappling with airspace closures, uncertain operations and a sharp rise in ATF prices following escalation of tensions in West Asia, the Union government has been urging Tamil Nadu and many others to reduce the tax rate for tax rationalization.

ATF forms an important aspect of airlines’ operating costs and is determined by various factors, such as the VAT rate. Planned Indian operators’ share of aviation fuel and oil expenses accounted for approximately 40% to 45% of total operating expenses.

In March 2025, Union Civil Aviation Minister Kinjarapu Rammohan Naidu informed the Parliament: “Considering the high VAT levied on ATF by the States/Union Territories, the issue was taken up with them. As a result, on the request of this Ministry, VAT on ATF has been reduced by 19 States/UTs.”

In February 2023, his predecessor Jyotiraditya M. Scindia, while attending an event in Chennai, made an open appeal to the State government to reduce the rate as Tamil Nadu is one of the seven States that impose VAT in the range of 20-30% on ATF. Mr Scindia said lowering the rate would provide a “huge impetus” to bringing more airlines to the region.