Cut VAT on ATF or risk flight diversion, Delhi told

Civil aviation minister Rammohan Naidu Kinjarapu has urged newly sworn-in Delhi chief minister Rekha Gupta to reduce the Value Added Tax (VAT) on Aviation Turbine Fuel (ATF) to 1-4% from 25%, arguing potential traffic diversion to the soon-to-be operational Greater Noida airport where the fuel will be competitively priced.

In a letter, reviewed by ET, the minister said: "Delhi continues to be one of the few states/UTs with a high VAT on ATF, which needs to be rationalised."

Fuel make up nearly 40-45% of the operating costs for an Indian carrier.

The minister, in the letter dated March 19, warned that the Uttar Pradesh airport's lower 1% VAT could divert airlines from IGIA to the upcoming facility. "This will impact Delhi airport due to the prohibitive cost difference of ATF," Kinjarapu said.

Indira Gandhi International Airport (IGIA) in Delhi is India's busiest airport, handling over 73.6 million passengers in FY24, including 19 million international travelers - a 24% increase from the previous year.

The greenfield airport at Jewar in Uttar Pradesh, off the Greater Noida suburbs to Delhi's southeast, is expected to be the second aviation gateway for the Capital, and its location might make it the preferred airport for those living in the eastern suburbs of Delhi and its satellite townships. The airport is expected to start commercial flights later this year. And, with a benefit of 1% VAT on ATF, it becomes a preferred spot for refuelling of aircraft, which, in turn, is a matter of concern for the GMR-operated Delhi airport.

Slashing Levies
Lowering VAT is seen as essential to maintaining IGIA's competitiveness and supporting its role in tourism, trade, and employment.

ATF is subject to VAT, which ranges from 0% to 29% across states.

"The high VAT in Delhi significantly impacts airline operations and cost structures, making fuel one of the biggest expenses for carriers," said an industry executive.

Over the years, airlines including IndiGo and Air India have sought government intervention on VAT and fuel costs.

"A reduction in VAT will have a direct impact on operational expenses, allowing airlines to offer more competitive fares and expand their networks," said a top airline executive, requesting anonymity.

Amid geopolitical tensions in the Middle East, ATF prices have surged. As of March 1, 2025, IOCL data shows ATF in Delhi costs ₹95,311 per kilolitre for domestic flights and $848.32 per kilolitre for domestic airlines on international routes.

Assocham has also called for a VAT reduction, emphasizing the need to retain economic activity in Delhi. "If airlines find a more cost-effective alternative, there is a risk that flights and related business activities may shift away from Delhi, impacting jobs and the local economy," a source said. The aviation sector now awaits the Delhi government's response.

VAT on ATF is a state matter. According to a Rajya Sabha response on March 24, 28 states/UTs levy VAT on ATF at 5% or less.

"This will impact Delhi airport due to prohibitive cost differences, making it uncompetitive and affecting ATF sales and government revenue. Considering Delhi is one of the busiest airports in the country, I urge the Delhi government to reduce VAT on ATF to 1-4% to boost air travel and its economic benefits," the minister said.