GST Council may discuss inclusion of ATF under GST: Sources  

The GST Council is deliberating the issue of including Aviation Turbine Fuel (ATF) under the Goods and Services Tax (GST) framework, Business Today TV has learnt from sources.  

As per the current tax structure, ATF is currently subject to an 11 percent central excise duty. A reduced rate of 2 percent is available under the Regional Connectivity Scheme (RCS).  

In addition to excise duties, VAT is levied on ATF at different rates depending on the state, adding complexity and inconsistency in the taxation.  

ATF is considered a variant of kerosene oil.  While the majority of inputs required for producing ATF are covered under the GST regime, ATF itself is excluded, which results in an inefficiency in the tax structure.  

Currently, ATF and natural gas fall outside the GST regime and are subject to state-level taxes, including excise duty and value-added tax (VAT). These taxes vary across states, significantly increasing operational costs for industries such as airlines, which have long sought uniformity in taxation. For instance, ATF can attract VAT rates as high as 30 percent in some states. 

Impact on aviation industry  

The VAT on ATF is applied on the entire value, including the excise duty, leading to cascading of taxes (tax on tax). This increases the effective cost of ATF.  

Manufacturers of ATF are unable to claim input tax credit (ITC) on the GST paid on their inputs, which adds to the overall cost of production and raises prices for the aviation sector.  

Benefits of inclusion under GST  

If ATF is brought under the GST regime, it would help in eliminating cascading taxes by allowing manufacturers to avail input tax credit.  

This could significantly reduce the overall cost of ATF at the refinery level, potentially lowering costs for the aviation industry and encouraging better price predictability and stability.  

Tarun Kapoor, Advisor to the Prime Minister’s Office (PMO), has said that the government is working to bring aviation turbine fuel (ATF) and natural gas under the Goods and Services Tax (GST) regime within this financial year.   Kapoor confirmed that discussions are underway to implement this shift, which has been a long-standing demand from various sectors, especially aviation and energy.

The ongoing discussions around this topic aim to streamline the tax structure for ATF, making it more efficient and less burdensome for the aviation sector, which is already dealing with various cost challenges.