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Windfall gains tax on domestic crude production, export of petrol, diesel, ATF scrapped

Apart from taking a share of windfall profits of oil producers and fuel exporters to partly soften the blow of duty cuts on domestic petrol and diesel sales, the government also wanted to ensure enough fuel supply to meet domestic demand through these taxes.

While the levy on petrol exports has been zero since July 20, 2022, on diesel exports, it has been nil since March 1, 2024. (Representational image)

Almost two-and-half years after it was introduced, the government has finally withdrawn windfall gains tax on domestic production of crude oil and export of diesel, petrol, and aviation turbine fuel (ATF). The Finance Ministry notifications for removal of the windfall tax—special additional excise duty (SAED) on production of crude and export of ATF, and road and infrastructure cess (RIC) on export of petrol and diesel—with immediate effect were laid in the Parliament on Monday.

Lately, not much revenue was getting generated by the windfall gains tax. In fact, the levies are currently nil. This is mainly due to significant softening in prices of crude oil and the three major fuels in the international market. The enabling provisions to impose the levy, however, continued to be in place. With Monday’s move, the government has effectively withdrawn those provisions as well, sources indicated. The industry had also raised concerns about the continuation of the levy, sources said.

These levies were first imposed on July 1, 2022 due to the surge in global oil and fuel prices in the aftermath of Russia’s invasion of Ukraine. As the price of crude oil produced in India is benchmarked to international prices, domestic oil prices also went through the roof. At the same time, margins on fuels were a lot more lucrative in other markets, incentivising refiners, particularly private sector players, to export fuels. This had resulted in fuel supply disruptions in some parts of the country.

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Apart from taking a share of windfall profits of oil producers and fuel exporters to partly soften the blow of duty cuts on domestic petrol and diesel sales, the government also wanted to ensure enough fuel supply to meet domestic demand through these taxes. The levies were reviewed on a fortnightly basis by the Finance Ministry based on crude oil and fuel prices in the international market.

With the international crude oil and fuel market nowhere as volatile as it was in the initial months of the Ukraine war, and the domestic fuel supplies stable and robust, the windfall gains tax collection has seen a steady decline over the past two-and-a-half years. The windfall gains tax mop-up was around Rs 25,000 crore in 2022-23 (FY23), around Rs 13,000 crore in FY24, and around Rs 6,000 crore so far in FY25.

While the levy on petrol exports has been zero since July 20, 2022, on diesel exports, it has been nil since March 1, 2024. On ATF exports, windfall gains tax was reduced to nil from January 2, 2024, while on domestic oil production, the levy was brought down to zero from September 18, 2024. When the windfall gains tax was first imposed, it translated to a levy of about $40 per barrel on domestic crude oil production, as crude oil prices were well over $100 per barrel at the time.

Aanchal Magazine

Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More

Sukalp Sharma

Sukalp Sharma is a Senior Assistant Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 13 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More