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

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.

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.