India’s estimated $433.8 billion oil and gas industry has sought tax relief to boost the country’s domestic exploration and compensation on under recoveries made on sale of cooking fuel in the upcoming Budget 2026-27.
The industry is seeking inclusion of crude oil and natural gas under GST at the lower 5% slab. A simplified taxation structure, the sector believes, will improve ease of doing business and bring down taxation burden.
The theme of late for the economy has been deregulation and tax optimization. The industry believes that while the recent Oilfields (Regulation and Development) Amendment Bill was a big step in deregulation of the upstream industry, the recent round of GST rationalization delivered a setback to the industry with GST rates on oilfield equipment and services rising from 12% to 18%.
“We remain hopeful of it being reduced to 5%, alongside an inclusion of petroleum within the GST framework, especially natural gas and ATF,” an tax expert said.
Another tax expert, ICRA notes that the oil marketing companies may seek compensation from the government before the budget for the under recoveries made on sale of liquified petroleum gas (LPG).
As per Icra’s calculations, the net under-recoveries on LPG (domestic) sales, after adjusting for the one-time grant announced in August 2025, will remain around Rs 30,000 crore.
Besides this, the sector is also hopeful of the long-standing demand of natural gas being categorized under the infrastructure sector to avail improved financing and credit opportunities.
“Infrastructure status being granted to the petroleum industry would also be a big boost in improving financing for the industry, which is facing challenges on this front,” he noted.
He said that the government can also look towards the idea of building a petroleum financing fund, like has been done in allied industries like shipbuilding and renewable energy, by utilizing revenue from the oil cess development fund, to invest in exploration of new fields, through both the private and public sector.
The country’s upstream sector wants a reduction in cess on crude oil, restoration of tax holidays for new blocks and exemption of exploration activities from GST.
The upstream sector in India operates under multiple contractual regimes, each with varying provisions for royalty and cess.
Harmonising royalty and cess structures across all regimes including nomination, pre-NELP (New Exploration Licensing Policy), NELP, or HELP (Hydrocarbon Exploration and Licensing Policy) contracts, the sector feels, could ensure a level playing field, reduce compliance burden, and promote equitable investment opportunities.
The government has been emphasizing on making the country a gas-based economy while taking several initiatives to increase the share of gas in the energy mix in the recent few years. Stakeholders see the trend continuing.
“The industry also wants lower GST rates or exemptions for pipeline construction materials, CNG, and biogas. The midstream industry is requesting the removal of the 2.5% customs duty on LNG imports to make natural gas more widely used as a fuel,” he said.
He noted that the industry incumbents also want natural gas and petroleum products to be included under GST to enable free flow of tax credits and avoid stranded taxes.
The country imports over 80% of its crude oil requirements. Addressing fiscal and regulatory concerns, the sector believes, will be crucial to unlock fresh investments and reduce import dependence over the medium term.
