Airlines request govt to extend cut of excise duty for domestic flights before making use of blended ATF mandatory

Blended ATF used by select airline and cargo operators for flights under the RCS-UDAN scheme will attract an excise duty of 2 percent.

Airlines — as part of the ongoing consultations with the Ministry of Finance and the Ministry of Civil Aviation (MoCA) — have requested the government to extend the cut of excise duty on blended aviation turbine fuel (ATF) to 2 per cent for domestic flights before making the use of blended ATF mandatory, multiple government officials told Moneycontrol.

"Airlines have requested the government to consider its excise duty reduction on domestic flights before setting a deadline for the use of blended ATF. They have stated that the cost of manufacturing sustainable aviation fuel (SAF) in India is still very high," an official from MoCA told Moneycontrol.

He pointed out that airlines have expressed concerns that setting a mandatory SAF blending target for domestic flights would lead to a significant rise in costs for airlines, which would translate to a steep rise in ticket prices for passengers.

"The airlines have pointed out that the rising cost pressures of higher airport fees coupled with uncertainty around crude oil prices owing to geopolitical tensions in the Middle East and leasing fees have started to hit their operating margins hard. To make matters worse, increasing ticket prices further would impact domestic air traffic growth," the official added.

The airlines’ concerns have accentuated after the Department of Revenue — under the Ministry of Finance — last week issued a separate classification for blended ATF under the mineral items category in the Central Excise Act.

The finance ministry has lowered the duty on blended ATF for all airlines operating cargo and passenger flights under the Regional Connectivity Scheme-UDAN (Ude Deshka Aam Nagrik) to 2 per cent from 11 per cent, stated a notification dated October 29.

Blended ATF used by select airline and cargo operators for flights under the RCS-UDAN scheme will attract an excise duty of 2 per cent. However, for other uses of blended ATF, the excise duty rate will remain 11 per cent, according to the notification.

Earlier in January, the Centre set a target to achieve a 1 per cent blending of SAF with ATF for international flights by 2027. It had indicated that a deadline for the compulsory use of blended ATF for domestic flights would be announced soon.

"Creating a new category for blended ATF is the primary step as part of our long term plan for the use of blended ATF. We are in consultation with the airlines, Niti Aayog, and oil marketing companies (OMCs). We are looking at setting a timeline for the mandatory use of blended ATF for domestic flights," a second official said.

He added that the initiative to create a new category of blended ATF is based on recommendations from a committee on SAF, which is established by the Ministry of Petroleum and Natural Gas.

Similarly, the first official indicated that as part of the ongoing discussion for the use of blended ATF, domestic carriers have requested for mandatory blending to begin only after 2028.

"India will need close to 14 crore litres of SAF per annum to cater to 1 per cent blending all domestic flights bynext year, which will likely rise to 20 crore litres by 2030," the official said.

At present, India produces around 800,000 litres of SAF annually.

In September, Civil Aviation Minister K Rammohan Naidu had called for the promotion of sustainable practices within the aviation industry, particularly the use of SAF, to reduce carbon emissions. SAF is a biofuel that is produced from sustainable feedstocks and has chemistry similar to conventional ATF or jet fuel, which is derived from crude oil.

Naidu had urged the introduction of SAF for international flights departing from India. He highlighted plans to ensure that 1 per cent of SAF is blended with jet fuel for international commercial flights by 2027 and with a target to increase that blend to 2 per cent the following year.

As per Deloitte India's report titled, “Green wings: India’s Sustainable Aviation Fuel (SAF) revolution in the making”, the nation could produce between 8 and 10 million tonnes of SAF annually by 2039-40.

"Investments worth Rs 6–7 lakh crore [$70–85 billion] would be required to realise the projected SAF production. It will give impetus to the aviation sector's decarbonisation efforts, reducing carbon emissions to 20–25 million tonnes annually," the report said.

The report indicates that an 8–10 million tonnes production would surpass India's estimated domestic demand of 4.5 million tonnes for a 15 per cent blending mandate in 2040 and applicable across all flights. The output could also position India as a leading SAF exporter serving global markets.