Fuel Duty Cut: How ATF Levy And Crude Spike Are Reshaping India’s Oil Market

India has tweaked fuel taxes at a time when crude prices are moving sharply. In just a month, global oil prices climbed from about $70 a barrel to nearly $122, putting pressure on both oil companies and government finances. Against this backdrop, the Centre has cut excise duty on petrol and diesel, while also introducing a new levy system for aviation turbine fuel (ATF).

The special additional excise duty on petrol now stands at ₹3 per litre, down from ₹13. Diesel has seen an even sharper cut, with duty reduced to zero from ₹10 per litre. The changes were notified late Thursday, 26 March 2026, and took effect immediately.

Why Has The Government Stepped In Now?

The timing links directly to the pressure building in the oil ecosystem. Public sector refiners such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation have been absorbing losses as crude prices rose, but retail fuel prices stayed largely unchanged.

Data suggests the marketing loss has widened to nearly ₹48.8 per litre. When seen against India’s daily fuel use, about 325.7 million litres of diesel and 164.8 million litres of petrol, the numbers quickly add up.

Union minister Hardeep Singh Puri indicated that the government had two options: pass on the full increase to consumers or take a hit on revenues. The decision has leaned towards shielding consumers, even if that means lower tax collections in the near term.

What Has Changed In ATF And Export Rules?

Alongside the duty cuts, the government has introduced a new structure for ATF. A headline excise duty of ₹50 per litre has been announced, but exemptions reduce the effective burden to roughly ₹29.5 per litre in many cases.

There is a clear distinction in how this applies. Domestic ATF use is exempt from the additional duty, while exports face tighter conditions. Earlier, exporters had broader relief under excise rules, but the latest notification narrows those benefits.

At the same time, certain strategic exemptions continue. Supplies by public sector companies to neighbouring countries such as Nepal, Bhutan, Bangladesh and Sri Lanka will still receive preferential treatment. This ensures that existing energy ties in the region are not disrupted.

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What Could This Mean For Markets?

The stock market reaction has been quick. Shares of oil marketing companies moved higher, with gains of up to 5% in early deals on Friday. Investors appear to be factoring in some relief on margins after the duty cuts.

For consumers, the outcome is less certain. If oil companies pass on the benefit, fuel prices could soften. But in the past, changes in central excise have sometimes been offset by state taxes, limiting the final impact at the pump.

There are also global factors in the mix. Indications of de-escalating geopolitical tensions, such as the possibility of a US-Iran rapprochement, are also being cited as factors that may boost oil supply.

Oil prices have already softened somewhat following the latest run-up. This may provide some relief in the market. But the bigger question is whether all this is sufficient. If oil prices remain volatile, the strain on the government and oil companies may continue.

Sources:

NDTV Profit

MSN