Ahead of the Union Budget 2026-27, India's estimated $433.8 billion oil and gas industry has stepped up its demands for tax relief and fiscal support, urging the government to address long-standing taxation and regulatory challenges that continue to weigh on domestic exploration and fuel affordability.
At the core of the industry's demands is the inclusion of crude oil, natural gas and aviation turbine fuel (ATF) under GST at the lower 5% slab. Industry stakeholders argue that a simplified and unified tax structure would significantly improve ease of doing business, reduce cascading taxes, and enable the free flow of input tax credits across the value chain.
The sector believes that while the government has been consistently advocating deregulation and tax optimisation, recent policy moves have sent mixed signals. The passage of the Oilfields (Regulation and Development) Amendment Bill is being viewed as a major step towards deregulating the upstream segment. However, the recent round of GST rationalisation has raised concerns, particularly after GST on oilfield equipment and services was increased from 12% to 18%, increasing project costs.
"We remain hopeful that GST on oilfield equipment and services will be reduced to 5%, along with the inclusion of petroleum products, especially natural gas and ATF under GST," a tax expert said.
LPG Under-Recoveries a Key Budget Issue
Another major expectation from the Budget is government compensation for under-recoveries incurred by oil marketing companies (OMCs) on the sale of domestic liquefied petroleum gas (LPG). According to estimates by ICRA, even after adjusting for the one-time grant announced in August 2025, net LPG under-recoveries are expected to remain around Rs 30,000 crore.
Tax experts note that timely compensation would help protect the financial health of OMCs while ensuring the continued affordability of cooking fuel for households.
Push for Infrastructure Status and Financing Support
The industry is also hopeful that natural gas will be accorded infrastructure status, a long-pending demand that could unlock better access to long-term financing and lower borrowing costs.
"Infrastructure status for the petroleum and gas sector would significantly improve financing prospects, especially at a time when capital access remains a challenge," an expert noted.
Stakeholders have also suggested the creation of a dedicated petroleum financing fund, similar to those established for shipbuilding and renewable energy. Such a fund could be supported through revenues from the oil cess development fund and deployed to finance exploration activities in new fields across both the public and private sectors.
Upstream Sector Seeks Cess and GST Relief
India's upstream oil and gas segment has called for a reduction in cess on crude oil, restoration of tax holidays for new exploration blocks and GST exemption for exploration activities to make domestic production more viable.
The sector currently operates under multiple contractual regimes-nomination blocks, pre-NELP, NELP and HELP contracts, each with different royalty and cess structures. Industry players believe that harmonising royalty and cess across all regimes would ensure a level playing field, reduce compliance burden and promote equitable investment opportunities.
Gas-Based Economy Push Continues
As the government continues its push towards making India a gas-based economy, stakeholders expect policy support to remain strong. The industry has sought lower GST rates or exemptions for pipeline construction materials, CNG and biogas, along with the removal of the 2.5% customs duty on LNG imports to promote wider adoption of natural gas.
Industry incumbents have reiterated that bringing natural gas and petroleum products under GST would eliminate stranded taxes and significantly lower fuel costs for consumers and businesses alike.
With India importing over 80% of its crude oil requirements, the industry believes that addressing fiscal and regulatory concerns in Budget 2026-27 will be critical to unlock fresh investments, boost domestic exploration, and reduce import dependence over the medium term.
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