In a major boost to the aviation sector, the Tamil Nadu government on Friday reduced the value-added tax (VAT) on aviation turbine fuel (ATF) supplied to scheduled airlines for domestic flights at Chennai airport from 29 per cent to 16 per cent.
At all other airports in the State, the tax on jet fuel has been reduced to 1 per cent.
The reduction in ATF VAT has been a long-standing demand of the airline industry. The move is likely to improve the cost competitiveness of airports in Tamil Nadu and encourage more airlines to operate services to Chennai and other airports in the State, industry sources said.
The concession will come into effect at midnight between October 31 and November 1, 2026, and remain in force until October 31, 2027, according to a notification issued by the State’s Commercial Taxes and Registration Department.
With the latest revision, Tamil Nadu’s VAT rate at Chennai airport is now on par with Telangana’s and lower than Karnataka’s, while the 1 per cent rate at other airports matches Andhra Pradesh’s. Data furnished by the Union Ministry of Petroleum and Natural Gas in the Lok Sabha four months ago showed that Andhra Pradesh levied 1 per cent VAT on ATF, Puducherry 14.5 per cent, Telangana 16 per cent and Karnataka 18 per cent.
“This is a welcome move to establish some parity with neighbouring metro airports and stem the exodus of airlines choosing locations with lower fuel costs. It is a small beginning, but there is still a long road ahead to regain the lost primacy,” an tax expert said.
The reduction in ATF VAT is expected to lower airlines’ operating costs and could help moderate airfares, particularly on routes where the tax savings are substantial. With fuel accounting for nearly 45 per cent of airlines’ operating expenses, the lower tax burden could give carriers greater scope to offer competitive fares, a source told businessline. However, the extent of the benefit will depend on how airlines pass on the savings, the source added.
“Stronger regional air links can support tourism, facilitate business travel, improve market access and boost economic activity across districts,” a statement from the TN Industries Ministry said.
In December 2025, the Centre had urged States to reduce VAT on ATF to help rein in airfares.
“We can look forward to lower freight rates and additional capacity out of Chennai. This may be the boost Chennai airport needs,” said Regional Chairman (Southern Region) of the Air Cargo Agents Association of India.
