Against this backdrop, the Tamil Nadu government has announced significant reductions in Value Added Tax (VAT) on ATF used by domestic scheduled airlines. This will take effect on 1 November 2026 and is scheduled to remain in force until 31 October 2027. The16 per cent VAT rate at Chennai Airport is now on par with Telangana’s and lower than Karnataka’s 18 per cent. At airports outside Chennai, the revised 1per cent rate matches Andhra Pradesh’s rate.
Data furnished by the Union Ministry of Petroleum and Natural Gas in the Lok Sabha four months ago highlights the wide variation in state taxes on ATF. Andhra Pradesh levied just 1 per cent VAT, compared with 14.5 per cent in Puducherry and 16 per cent in Telangana. Since then, several states have reduced their rates: Maharashtra from 18 per cent to 7 per cent, Goa from 15 per cent to 7 per cent and Delhi from 25 per cent to 7 per cent.
Stabilisation Scheme
To ease the pressure of rising aviation fuel costs, in June, the Union Cabinet approved up to Rs 10,000 crore in interest-free advances to oil marketing companies (OMCs) to support a mechanism aimed at stabilising ATF prices for scheduled domestic airlines. However, the scheme did not attract the airlines because the proposed arrangement had its own clauses such as predetermined oil prices, a three-year contract and a long-term procurement commitment. This highlights the challenge of designing fuel support measures that suit airlines’ business requirements.
Can the VAT Cut Boost Regional Connectivity?
For Tamil Nadu, this could create opportunities to improve air connectivity between regional cities and other domestic destinations. However, the tax reduction alone may not be enough to encourage airlines to introduce new routes. Decisions will also depend on passenger demand, aircraft availability, airport infrastructure and the commercial viability of individual routes. The measure creates an opportunity for Tamil Nadu’s aviation sector, but its success will ultimately be determined by the operational decisions airlines make in the months ahead.