CHENNAI: Tamil Nadu will cut value-added tax (VAT) on aviation turbine fuel (ATF) from November 1, reducing the rate at Chennai airport from 29% to 16% and at airports elsewhere in the state from 29% to 1%, in a one-year bid to lower airlines’ operating costs and promote regional connectivity, according to a Government Order.
A separate concession will reduce VAT on fuel supplied to smaller aircraft with a maximum take-off mass below 40,000 kg at airports outside Chennai from 5% to 1%. The three notifications issued by the Commercial Taxes and Registration Department on Friday will remain in force until October 31, 2027.
The differential in tax relief is significant. Chennai gets a 13-percentage-point reduction, while airports elsewhere receive a 28-percentage-point cut. The steeper reduction outside the capital could improve the commercial viability of regional routes, where lower passenger volumes can make operations harder to sustain.
ATF is outside the GST regime, leaving states to levy VAT at their own rates. This gives state governments a direct fiscal lever to influence airlines’ operating costs and compete for regional air connectivity.
In a social media post, Industries Minister S Keerthana said, “We are taking a decisive step towards making air travel more accessible and our regional airports more competitive. Lower operating costs can encourage airlines to introduce new routes, increase flight frequencies and expand operations beyond Chennai. This means better connectivity for our cities, a boost to tourism and trade, and new opportunities for businesses and travellers across Tamil Nadu.”
Though the tax cuts will reduce the VAT component of airlines’ fuel bills, the extent of the savings will depend on their fuel purchases and operations. Any reduction in ticket prices will depend on whether airlines pass on the savings to passengers. The notifications, issued under Section 30 of the Tamil Nadu VAT Act, 2006, do not quantify the expected revenue loss or specify the airlines or routes the government hopes to attract.
IndiGo said the move could strengthen air connectivity and support tourism and economic growth. In a statement, the airline thanked Chief Minister C Joseph Vijay for the initiative.
“We hope similar progressive initiatives will make air travel more accessible,” the airline said, without announcing any immediate changes to fares or flight operations.