Tax relief on ATF: Maharashtra extends 7% VAT on jet fuel until April 2027, what it means for airlines

Maharashtra's state government has extended the reduced 7% value-added tax (VAT) on aviation turbine fuel (ATF) until April 14, 2027. This decision provides airlines with an additional six months of lower fuel taxes, offering some financial relief amid rising fuel costs and longer flight routes. The Maharashtra Finance Department announced the extension on November 12, following requests from airlines to maintain the lower VAT rates.

Airlines, including IndiGo, Air India, and SpiceJet, have argued that cheaper fuel taxes can help reduce operating costs and encourage more fuel purchases within the state. The Federation of Indian Airlines (FIA) has urged both Maharashtra and Delhi governments to retain the lower VAT rates, citing a 40% increase in aviation fuel purchases in Delhi due to the tax reduction.

Fuel costs now account for around 50-55% of airlines' operating expenses, surpassing the usual 30-40% range. The ongoing West Asia crisis has further heightened fuel expenses for airlines, as airspace restrictions have forced them to take longer routes, increasing fuel consumption and crew expenses. The depreciation of the rupee has also added to airlines' challenges, making foreign currency payments for aircraft leases, maintenance, and insurance more expensive.

The extension of the lower VAT rate in Maharashtra could provide greater certainty for airlines' fuel expenses in the coming months.