The Modi government on Monday scrapped the windfall profit tax on domestically produced crude oil and fuel exports, effective immediately, following a sustained decline in international oil prices, a government notification showed.

Minister of state for finance Pankaj Chaudhary tabled the notification in the Rajya Sabha, announcing the removal of the tax imposed on companies such as state-run Oil and Natural Gas Corporation (ONGC) and private exporters such as Reliance Industries Ltd.

The move rescinds a June 2022 order imposing special additional excise duty (SAED) on crude oil production and the export of aviation turbine fuel (ATF), diesel and petrol. The road and infrastructure cess (RIC) on fuel exports has also been withdrawn.

The tax was introduced on July 1, 2022, as global oil prices surged following the Russia-Ukraine conflict, with levies initially set at ₹23,250 per tonne on crude oil and ₹6 to ₹13 per litre on fuel exports. Rates were reviewed fortnightly based on international oil price trends.

The levy on crude oil fluctuated significantly, peaking at ₹23,250 per tonne before falling to ₹1,850 by August 31, 2024, and eventually being reduced to nil. Similarly, export duties on petrol and ATF were eliminated within the first year, while taxes on diesel exports ceased in March 2023.

The windfall tax generated ₹25,000 crore in revenue during its first fiscal year, but collections dropped to ₹13,000 crore in 2023-24 and ₹6,000 crore this year, as levies were often set at zero following reviews.

"The scrapping of windfall tax is expected to have limited impact on oil companies as the same had been reduced to nil on crude oil since September 18, 2024, and on petroleum products since February 29, 2024," Prashant Vasisht, senior vice-president & co-Group head — corporate ratings, Icra said.