New Delhi: The government’s decision to raise Goods and Services Tax (GST) from 12 percent to 18 percent on petroleum operations could weigh heavily on India’s upstream oil and gas sector, analysts have cautioned. The move is expected to raise production costs, reduce competitiveness of exploration projects and risk stranding some assets.
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According to a notification, the higher GST rate will apply to petroleum operations undertaken under petroleum exploration licences or mining leases granted by the Central government or state governments to Oil & Natural Gas Corporation (ONGC) or Oil India Limited (OIL) on a nomination basis. It also extends to operations under specified contracts, including those under the New Exploration Licensing Policy (NELP), the Marginal Field Policy (MFP), and coal bed methane (CBM) projects under the Coal Bed Methane Policy.
In addition, composite supply of works contracts and associated services relating to offshore oil and gas exploration and production will now attract 18 percent GST with Input Tax Credit (ITC). The supply of transportation of natural gas, petroleum crude, motor spirit, high-speed diesel or ATF through pipeline will also face GST at 18 percent with ITC or 5 percent without ITC. Other professional, technical and business services linked to exploration, mining or drilling of crude oil and natural gas will also attract 18 percent GST with ITC.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd, said, "GST has been increased on exploration, development and production of oil and gas from 12 percent to 18 percent which would lead to increase in the cost of production of crude oil and natural gas. As crude oil and natural gas are outside the purview of GST, an increase in the cost of production without an offset available on sale of these products will lead to stranded taxes. As oil and gas prices have moderated significantly since April 2025 on account of global economic headwinds and unwinding of production cuts by OPEC+, realisations of Upstream comapnies have reduced. Accordingly moderating realisations and increase in cost of production would be a double whammy for the Upstream industry and could lead to some assets not being developed on account of poor returns."
Adding to the concerns, Dhaval Popat, Energy Analyst at Choice Institutional Equities, said, “Higher GST rate will make exploration & production (E&P) projects—particularly coal-bed methane (CBM) initiatives—less competitive, creating headwinds for efforts aimed at boosting domestic output and reducing import dependence.”
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Analysts said the GST hike comes at a time when India is seeking to raise domestic oil and gas production to meet its energy security goals. With crude oil and natural gas continuing to remain outside the ambit of GST, the increased tax burden without a corresponding credit mechanism could undermine the economics of upstream projects.
