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ATF (aviation turbine fuel) state VAT
What it is
Aviation turbine fuel sits outside GST, so states levy VAT on it under the State List - a constitutional feature rather than an oversight. Rates ranged from 1% at UDAN airports to 25-29% in high-revenue states before reductions in May 2026
ATF is roughly 35-40% of an Indian airline's operating cost against a global average nearer 25%
Impact on industries
- The single largest structural disadvantage of Indian aviation - it makes Indian ATF 35-50% costlier than in Gulf or Southeast Asian hubs
- The states with the highest rates host the busiest hubs, so the tax lands hardest exactly where traffic concentrates
- Cost shocks pass through to capacity - by May 2026 ATF crossed Rs 1,00,000 per kilolitre and carriers cut scheduled operations for the following quarter
- Reform is moving - Maharashtra cut VAT effective May 2026 and UDAN airports pay 1% or less, though full relief needs ATF in GST and state consent