New Delhi: GMR Airports, operator of Delhi's Indira Gandhi International (IGI) airport, has sought a cut in Delhi’s value added tax (VAT) on jet fuel to as low as 1% from 25%, warning that the steep levy could divert airlines and passengers to the upcoming Jewar airport in the neighbouring Uttar Pradesh, where the fuel is taxed just 1%, according to letters reviewed by Mint.
GMR's appeal, through its airport joint venture Delhi International Airport Ltd (Dial), came just ahead of the launch of the National Capital Region’s second major airport in Jewar, sharpening competition for traffic. With jet fuel accounting for about a third of airline costs, the tax gap risks higher fares and a significant traffic shift, the company said. GMR had made a similar appeal last year too.
The company has simultaneously sought the Union civil aviation ministry's backing on the matter.
The Jewar airport, 90 km from the IGI airport, the country’s busiest one, was inaugurated on 28 March by Prime Minister Narendra Modi. Flight operations are expected to start in another 45 days.
VAT on jet fuel, the common name for aviation turbine fuel (ATF), is a state subject, and the rate is decided by the respective state governments.
“While the government of NCT of Delhi levies 25% VAT on ATF, neighbouring states, most notably Uttar Pradesh, levy only 1% .... With forthcoming operational launch of Jewar airport in Noida, this difference becomes even more consequential,” Dial's chief executive Videsh Kumar Jaipuriar wrote to the Union civil aviation minister K. Rammohan Naidu in February. Mint has reviewed a copy of the letter.
Dial, a joint venture between GMR Airports and the Airports Authority of India, has developed, manages and operates the IGI airport.
The company's letter to the Delhi government, also written in February, was addressed to Delhi chief minister Rekha Gupta. "Currently, IGI airport is the only airport in the NCR region and serves the catchment area around it. However, in near future, NCR will have a dual airport system i.e. two airports serving the same catchment area…. resulting in competition in the NCR region. Against this backdrop, the current VAT rate on ATF in Delhi has emerged as a matter of concern," Dial said, seeking a VAT rate of 1-4%.
Both GMR and the civil aviation ministry have not responded to Mint's queries on the issue.
The company's request to rationalize VAT rates on jet fuel predates the ongoing war in West Asia but is now even more relevant. The aviation sector is grappling with the double whammy of rising global jet fuel prices and closure of key airspaces, which has increased flying time and operational costs for airlines.
High jet fuel cost and the taxes are passed on to consumers through ticket prices. Hence, a higher VAT rate in Delhi will mean costlier tickets for passengers flying to and from the IGI airport.
Jet fuel prices have surged in recent weeks amid escalating tensions due to the US-Iran war that started late February. Its prices in India are market-linked and are revised on the first of every month by state-run oil marketing companies. In Delhi, ATF prices were raised in March to ₹96,638.14 per kilolitre, up about 6% from February. The escalated war and energy supply disruptions this month could add to the pain.
Traffic risk
GMR said higher fuel prices could prompt an "anticipated traffic shift of 13-16% over a period" from Delhi to "other lower-tax airports in the region". The VAT rate gap mean a passenger would pay at least ₹350 - 450 more per ticket in Delhi as against Jewar, GMR said in its letter to the civil aviation minister.
"A cost competitive fuel environment is essential for any airport aspiring to serve as a hub," it said.
GMR, the country's largest airport operator by revenue, manages three airports—Delhi, Hyderabad and Goa. Its fourth one, at Bhogapuram in Andhra Pradesh is expected to come up later this year. The company had reported a consolidated income of ₹10,836 crore in FY25.
GMR's closest rival Adani Airport Holdings Ltd, a subsidiary of the Adani Enterprises, manages eight airports—Mumbai, Navi Mumbai, Ahmedabad, Lucknow, Mangaluru, Jaipur, Thiruvananthapuram and Guwahati. In FY25, it saw a turnover of ₹10,224 crore.
“GMR's concern is valid. In the long term, if VAT rates in Delhi are not rationalized with neighbouring states, then there will be an impact on its traffic,” said Satyan Nayar, Secretary general of the Association of Private Airport Operators, a body of private airport operators. "So, airlines will tap into lower cost airports for refuelling, night parking, and so on. Ticket prices will be higher in Delhi compared to neighbouring airports such as Jewar. The impact may not be visible immediately. But, in a year or two, it would be seen."
Indian carriers have already started passing on their higher fuel costs to passengers by imposing fuel surcharges on tickets. On domestic routes, these surcharges are currently in the ₹199-425 per ticket range.
