India Cuts Windfall Tax On Diesel, Jet Fuel Exports; Oil & Gas Stocks Crash; ONGC, RIL, IOCL Fall 1-2%

India has reduced its special additional excise duty, aka windfall tax, on diesel and jet fuels while keeping levies unchanged on petrol. The new rates have come into effect from October 1, 2026, and will continue till next fortnight, unless further notice. However, oil and gas stocks crashed sharply following the decision. Stocks like Mahanagar Gas, Oil India, Adani Total Gas, Indian Oil, and Reliance Industries are trading in deep red.

Windfall Tax Cut

As per the Finance Ministry's notification, the SACD or windfall tax has been trimmed to Rs 16 per litre on diesel from earlier Rs 20 per litre. This means diesel exporters in India will pay Rs 4 lesser on per litre during exports.

Similarly, windfall tax on aviation turbine fuel (ATF) is lowered by Rs 4.50 per litre to Rs 10.5 per litre from earlier Rs 15 per litre.

On the other hand, windfall tax on petrol exports remained unchanged at Rs 0.50 per litre till the next fortnight.

This follows the previous reduction in diesel and ATF export taxes on September 16.

What Are Windfall Tax?

The companies pay windfall tax to the government during the export of fuel products.

Windfall taxes are imposed on companies and industries during unprecedented times such as geopolitical crisis, pandemics, wars, or supply shortages. These are applied to companies who are expected to reap gains from external circumstances.

Oil & Gas Stocks Crash Today

At the time of writing, the Nifty Oil & Gas index traded at 10,544.15, lower by 70.40 points or 0.7%. Among the top losers included Chennai Petroleum Corporation that plunged 4%, followed by Mahanagar Gas, Oil India, and Adani Total Gas which tumbled by 2% each.

Meanwhile, Indian Oil, Indraprastha Gas, ONGC, and Reliance Industries crashed by over 1% each.

As per analysts at Choice Institutional Equities, despite crude flows through the Strait of Hormuz recovering, we view the physical oil market remains significantly tighter than headline flow data suggest. Brent spot prices continue to trade at a premium of $20/b to futures, indicating persistent nearterm supply tightness. Based on the spot-futures structure, we estimate the physical market deficit remains at ~8 mbd. A further decline
in Chinese crude imports remains the key factor that could narrow this deficit, while additional IEA stock releases could add downward pressure on oil prices.

"A duty by the Government of India of Rs 16/litre for diesel translates to $26/b. Meanwhile, Dubai Gasoil crack continues to be higher than $80/b," added the analysts.

Looking ahead, these analysts added, "As we mark to market our estimates, we raise our FY27 Brent price assumption to an average of $86/b, primarily reflecting an upward revision in our Q3FY27 estimate to $80/b from $75/b. We maintain our Q4FY27 Brent assumption at $78/b."

As per Bajaj Finserv website explainer, windfall taxes are majorly disadvantageous to companies as they reduce profits. Heavy taxes could also curb innovation as companies may be forced to limit their investment in research and development efforts. Also, companies or industry may transfer the burden to consumers to sustain their profit margins, which will likely spike market costs for consumers.

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