The GST Council on Wednesday approved raising the tax on services rendered for oil and gas exploration and production to 18 per cent from the current 12 per cent . With this move, oil and gas exploration and production will cost more. Finance Minister Nirmala Sitharaman announced that the new tax rates will be effective from September 22.
All the services relating to exploration, mining or drilling of petroleum crude or natural gas have been increased to 18 per cent with input tax credit (ITC), according to an official note. The government has taken the same move for support services to exploration, mining or drilling of petroleum crude or natural gas or both.
The increase in GST “would lead to an increase in the cost of production of crude oil and natural gas,” Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, Icra Ltd. told PTI.
As crude oil and natural gas are outside the purview of GST, an increase in the cost of production without an offset available on the sale of these products will lead to stranded taxes, he said.
“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 (oil and gas producing) companies have reduced,” he added during his conversation with the news agency.
Accordingly, moderating realisations and an 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,” he said.
Dhaval Popat, Choice Institutional Equities, told PTI that the increase in GST on oil and gas exploration, production, and pipeline services from 12 per cent to 18 per cent will increase operational costs and compress corporate margins.
Higher GST rate will make exploration and 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, he said.
(With inputs from PTI)
