IndiGo, SpiceJet shares in focus as Delhi, Maharashtra slash ATF VAT to 7%

On Saturday, the Delhi government reduced the value-added tax on aviation turbine fuel from 25% to 7%, officials said.

"Delhi government has decided to reduce the value-added tax (VAT) on aviation turbine fuel (ATF) from the existing 25 per cent to 7 per cent, a move which is likely to benefit the airlines and common passengers," an official statement said.

The decision was taken at a Cabinet meeting chaired by Chief Minister Rekha Gupta, it said.

The move follows global fuel uncertainty arising from the ongoing conflict in West Asia.

Similarly, the Maharashtra government reduced VAT on ATF to 7% from 18% for a period of six months beginning May 15, an official said.

The decision was notified by the state finance department on May 14 under the Maharashtra Value Added Tax Act 2002.

"The concession will remain in force from May 15 to November 14, after which the previous rate will apply unless extended or modified by the government. The amendment substitutes the existing 18% tax rate with 7% in Entry 6 of Schedule B appended to the Maharashtra Value Added Tax Act 2002," an official notification informed.

The reduction in VAT is expected to lower fuel costs for airlines and could help improve air connectivity and the competitiveness of airports in the state, the official added.

Impact on aviation stocks

The decision by Maharashtra and Delhi to cut VAT on jet fuel is primarily positive for airline stocks, as fuel is one of the highest operating costs for aviation companies.

• InterGlobe Aviation

According to analysts, IndiGo is the biggest likely beneficiary because it has the largest domestic market share and massive fuel consumption. Lower ATF taxes can improve operating margins and reduce cost pressure.

• SpiceJet

The move is positive for SpiceJet as well because the airline has been under financial stress, and any reduction in fuel cost offers meaningful relief.