Tamil Nadu Plans to Slash VAT on Aviation Fuel to Match Neighbouring States

The Tamil Nadu government, led by the Tamilaga Vettri Kazhagam (TVK), is considering a reduction in the state-level Value Added Tax (VAT) on Aviation Turbine Fuel (ATF). Currently set at 29%, officials indicate the goal is to align the rate with those of neighbouring states. The final decision is expected to be announced in the state budget.

According to data provided by the Union Ministry of Petroleum and Natural Gas to the Lok Sabha four months ago, Andhra Pradesh charges 1% VAT on ATF, Puducherry 14.5%, Telangana 16%, and Karnataka 18%. Kerala applies a sales tax of 5% plus 1% cess on tax, with each of its four airports—Thiruvananthapuram, Nedumbassery, Kannur, and Kozhikode—levying an additional 1% tax and 1% cess.

The proposed reduction responds to persistent requests from the Union government to lower the tax, which significantly impacts airline operating costs. In recent months, Maharashtra and Delhi reduced their VAT on ATF from 18% and 25% respectively to 7%. Delhi's reduction is initially valid for six months, while Maharashtra has set no time limit.

While the move is seen as relief for the aviation sector, which has faced airspace closures, operational uncertainties, and rising ATF prices due to tensions in West Asia, the Union government has also urged states to rationalise taxes. ATF accounts for about 40% to 45% of total operating expenses for scheduled Indian airlines.

In March 2025, Union Civil Aviation Minister Kinjarapu Rammohan Naidu informed Parliament that 19 states and union territories had reduced VAT on ATF following the ministry's request. His predecessor, Jyotiraditya M. Scindia, had appealed to Tamil Nadu in February 2023 to lower the rate, noting that the state was among seven with VAT in the 20-30% range. He argued that a reduction would encourage more airlines to operate in the region.