India’s two largest aviation hubs – Delhi and Mumbai – have announced huge cuts in value-added tax (VAT) on aviation turbine fuel (ATF). The decision is expected to provide relief to airlines that are facing rising costs, especially at a time when global fuel prices, depreciating rupee and operational costs are rising rapidly.
How much tax reduction has taken place in Delhi and Mumbai?
On the tax front, Delhi has reduced VAT on ATF from 25 per cent to 7 per cent. These relief measures have been implemented for a period of six months. At the same time, Maharashtra has reduced VAT on ATF for domestic flights in Mumbai from 18 percent to 7 percent. This decision has been taken at a time when airlines were struggling with rising fuel prices and had warned the government about increasing operational costs.
Fuel crisis has increased the troubles of airlines.
The aviation sector is currently facing a serious fuel crisis. The Federation of Indian Airlines (FIA) – which includes airlines like Air India, IndiGo and SpiceJet – has warned the government that many flight routes are becoming economically unviable due to rising fuel costs. According to the FIA, fuel costs previously constituted about 30 to 40 percent of an airline’s total costs; However, now this figure has reached between 55 and 60 percent.
impact of global stress
Ongoing tensions in the Middle East as well as supply disruptions around the Strait of Hormuz have also had a clear impact on jet fuel prices. A large part of the global supply of oil and LNG passes through this important sea route. Jet fuel prices were around $99 per barrel at the end of February 2026, but they rose to around $263 per barrel by May 2026.
Why are Delhi and Mumbai so important?
According to data disclosed by Chief Minister Rekha Gupta, Delhi’s Indira Gandhi International Airport handled around 80 million passengers in 2024-25, while Mumbai Airport handled 55 million passengers in 2025 and recorded over 3,31,000 aircraft movements. Most of the domestic and international flights in the country operate from these two cities. This is the reason why the reduction in fuel tax at these places is expected to have a huge impact on the entire aviation sector.
Increase in ATF consumption
The demand for Aviation Turbine Fuel (ATF) is continuously increasing in India. According to government data, about 764,000 metric tons of ATF was consumed in the country in February 2026. At the same time, in 2025, domestic airlines will carry about 167 million passengers. Amidst such high demand, even a slight relief in fuel prices can help airlines save a lot of costs.
Financial pressure on airlines
Airlines are already facing many financial challenges. Rising lease rents, shortage of aircraft, technical problems in engines, maintenance costs and the depreciation of the rupee against the US dollar have further increased the problems of these companies. The impact of these reasons is now clearly visible on the operational performance of companies. Air India has stopped some international flights like Chicago, Newark and Shanghai, while the number of flights on many other routes has been reduced. In contrast, IndiGo’s net profit saw a decline of about 77.6 percent in the third quarter of FY2026.
**Potential reduction in fuel tankering
The reduction in ATF tax may also impact the fuel strategies adopted by airlines. Until now, many airlines adopted the strategy of “fuel tanking”; That is, they filled fuel at airports where tax rates were lower, so that they did not have to fill fuel at airports where fuel prices were higher. However, this approach increased the overall weight of the aircraft, impacting fuel economy. Experts believe that after the tax cuts in Delhi and Mumbai, the need for such strategies will reduce.
Will airfare be cheaper?
Despite the tax cut, passengers are unlikely to see any immediate reduction in ticket prices. In the aviation sector, fares are not determined solely by operational expenses; Rather, the dynamics of demand and supply also play an important role in this. For now, passenger demand remains strong, while flight capacity is limited due to aircraft shortages and technical glitches. In such a situation, airlines will probably give more priority to reducing their current financial pressure.
loss of revenue to states
State governments are also expected to suffer loss of revenue due to this decision. The Delhi government estimates that they may suffer a loss of around ₹985 crore due to the VAT cut. Meanwhile, Maharashtra is estimated to suffer a revenue loss of ₹550 to ₹600 crore every year. However, both governments are hopeful that the move will help retain their respective cities as strong aviation hubs.
Increasing demand to bring ATF under the ambit of GST
Meanwhile, the long standing demand of the aviation industry has once again gained momentum that Aviation Turbine Fuel (ATF) be brought under the ambit of Goods and Services Tax (GST). Currently, VAT rates on ATF vary across states, preventing airlines from availing the benefit of input tax credit. The industry claims that if ATF is included in the GST regime, the cost of fuel can be made uniform across the country.
