Government Overhauls Fuel Duty Structure: Excise on Petrol Slashed to ₹3/Litre, Diesel to Nil; New ATF Levy Framework Introduced with Targeted Exemptions

In a significant recalibration of the fuel taxation framework, the Central Government has issued a series of Notifications all dated March 26, 2026 covering Customs and Central Excise, introducing a structured levy mechanism for Aviation Turbine Fuel (ATF), reducing duties on petrol and diesel, and streamlining export-related provisions. These changes aim to balance domestic supply priorities, revenue considerations, and international trade commitments.

As part of the reform measures, Notification No. 07/2026-Customs exempts imports of Aviation Turbine Fuel from the whole of additional duty of customs equivalent to Special Additional Excise Duty. This ensures parity in taxation between imported and domestically supplied ATF and supports the aviation sector.

Under Notification No. 05/2026-Central Excise, amendments have been carried out to revise duty rates on petroleum products, including prescribing a rate of Rs. 3 per litre in specified cases while exempting others. The notification also clarifies that these provisions shall not apply to goods cleared for export, reinforcing export-linked policy adjustments.

Through Notification No. 06/2026-Central Excise, the Government has reduced the Special Additional Excise Duty on petrol to Nil and prescribed a rate of Rs. 18.5 per litre on diesel, marking a substantial rationalisation of fuel duties.

A key feature of the reform is the introduction of a levy on ATF through Notification No. 07/2026-Central Excise, which imposes a Special Additional Excise Duty of Rs. 50 per litre. This establishes a headline duty framework for aviation fuel.

Subsequently, Notification No. 08/2026-Central Excise provides relief by capping the effective duty on ATF at Rs. 29.5 per litre through exemptions, thereby moderating the tax burden.

Further, Notification No. 09/2026-Central Excise grants exemption from Special Additional Excise Duty on ATF in specific scenarios, particularly for domestic consumption, while retaining restrictions on export-related clearances except for supplies to neighbouring countries.

To promote international operations, Notification No. 10/2026-Central Excise exempts petrol, diesel and ATF from Basic Excise Duty and Agriculture Infrastructure and Development Cess when supplied for export or to foreign-going aircraft, thereby providing relief to exporters and the aviation sector.

Additionally, Notification No. 11/2026-Central Excise revises additional excise duty rates, setting Nil rate for petrol and Rs. 3 per litre for diesel, while maintaining export-related exclusions.

Through Notification No. 12/2026-Central Excise, amendments clarify that export-related benefits under earlier notifications shall not apply broadly, except for supplies made by public sector oil companies to neighbouring countries such as Nepal, Bhutan, Bangladesh and Sri Lanka.

Further, Notification No. 13/2026-Central Excise rescinds Notification No. 18/2022-Central Excise, thereby withdrawing earlier provisions and aligning the regulatory framework with the revised policy approach.

In addition, Notification No. 02/2026-Central Excise (N.T.) amends the Central Excise Rules, 2017 to exclude petrol, diesel and ATF from rebate and export procedures under rules 18 and 19, except where exports are made by public sector oil companies to neighbouring countries.

These changes collectively establish a multi-layered taxation structure for ATF, combining a headline levy with calibrated exemptions, while simultaneously reducing duties on petrol and diesel. The revised framework also narrows export-related concessions, ensuring that exemptions are targeted and aligned with strategic and regional considerations.

The measures come into force with immediate effect and reflect the Government’s intent to ensure energy security, rationalise tax structures, and maintain stability in the fuel sector amid evolving global market conditions.

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