Cooking gas and jet fuel — ‘under-recoveries’ and the missing tax credit

Syllabus:  General Studies Paper III — Indian Economy (taxation, energy and infrastructure)

1. What happened

With tensions in West Asia straining the supply of cooking gas (Liquefied Petroleum Gas), the state-run oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — revised fuel prices from 1 June 2026. 

        The large commercial gas cylinder was raised sharply and the small cylinder used by migrant workers also rose, but the regular household cylinder was left untouched. In aviation, jet fuel (Aviation Turbine Fuel) for international flights was cut in line with falling global crude prices, while jet fuel for domestic flights did not move at all.

2. The pricing pattern at a glance

COOKING GAS (LIQUEFIED PETROLEUM GAS)

14.2-kg household cylinder (protects the poor)	Unchanged · ₹913
19-kg commercial cylinder (4th rise since 28 Feb; total +₹1,345.5)	▲ Raised · +₹42
5-kg free-trade cylinder (used by migrant workers)	▲ Raised · +₹11

 

JET FUEL (AVIATION TURBINE FUEL)

International flights (tracks global crude)	▼ Cut · about −$400 per kilolitre
Domestic flights (held back by heavy taxes)	Unchanged · about ₹1.04 lakh per kilolitre

 

THE CROSS-SUBSIDY AT WORK The oil companies are absorbing losses of about ₹650 on every household gas cylinder and ₹30 per litre of jet fuel sold to domestic airlines. To recover these losses, they charge more on the commercial cylinders and other unprotected fuels — which is why the price changes are so uneven.

3. ‘Under-recovery’ — the key idea

• An under-recovery is the gap between what it actually costs an oil company to buy, refine and deliver a fuel, and the lower, government-influenced price at which it must sell. The company simply absorbs this loss on its own books.
• This is not the same as a subsidy. A subsidy is real money paid out from the government’s Budget (for example, the direct cash transfer for cooking gas). An under-recovery is a loss carried by the company, with no immediate payment from the government.

QUICK FACTS →  Memory aid for the five fuels outside the Goods and Services Tax: Crude oil, High-speed diesel, Motor spirit (petrol), Natural gas, Aviation turbine fuel — the ‘C-H-M-N-A’ group. →  Cooking gas is INSIDE the Goods and Services Tax (5%) — the trap is to slip it into the ‘outside’ list in place of jet fuel. →  Under-recovery vs subsidy: an under-recovery sits on the oil company’s books; a subsidy comes from the government Budget. They are not interchangeable.

4. Why domestic jet fuel will not fall

• Fuel makes up 30% to 50% of an airline’s running costs — so its price decides ticket prices and airline survival.
• Jet fuel sits outside the Goods and Services Tax. It is taxed instead under the old Central Excise Act of 1944 (about 11% central duty) plus a State Value Added Tax that ranges from 0% to 29%.
• Because it is outside the Goods and Services Tax, airlines cannot claim back the tax they pay on it (the “input tax credit”). So the tax piles up at each stage — a cascading effect — keeping domestic prices high even when global crude falls.

UPSC VALUE BOX
Five fuels kept outside the Goods and Services Tax	Under Article 279A(5) of the Constitution, five petroleum products are, for now, taxed the old way: crude oil, high-speed diesel, petrol, natural gas, and jet fuel (Aviation Turbine Fuel). The Goods and Services Tax Council decides when to bring them in. Cooking gas is not on this list — it is already taxed under the Goods and Services Tax (5%).
Goods and Services Tax Council	The body that decides Goods and Services Tax rates. Chaired by the Union Finance Minister, with the Union Minister of State for Finance and one minister from each state as members.
Under-recovery vs subsidy	Under-recovery = a loss the oil company carries when the selling price is below cost. Subsidy = actual money paid from the government Budget (for example, the cooking-gas cash transfer).
Input tax credit	Under the Goods and Services Tax, a business can subtract the tax it already paid on its inputs from the tax it owes on its sales. This relief is not available for fuels taxed under the excise system — causing tax to cascade.
Pradhan Mantri Ujjwala Yojana	The Prime Minister’s flagship scheme giving clean cooking-gas connections to poor households. Keeping the household cylinder price steady directly shields these families.
The small free-trade cylinder	A 5-kg cylinder sold without needing a local address proof — which is why migrant workers and the informal sector rely on it.

With reference to fuel pricing in India, consider the following statements:

1. Under Article 279A(5) of the Constitution, crude oil, petrol, diesel, natural gas and cooking gas are kept outside the Goods and Services Tax.
2. Under-recoveries of oil marketing companies are losses carried on their own books, distinct from subsidies paid out of the government Budget.
3. Jet fuel currently attracts central excise duty under the Central Excise Act of 1944, and airlines cannot claim input tax credit on it.

How many of the above statements are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

ANSWER: (B) ONLY TWO