GST Increase to 18% to Increase the Cost of Oil & Gas Exploration from September 22

New Delhi, September 4, 2025 – India’s oil and gas industry will face higher operating expenses later this month as the GST Council approved raising the tax rate on exploration and production (E&P) services to 18 per cent from the current 12 per cent, effective September 22. The revised rate will cover services related to the exploration, mining, and drilling of petroleum crude and natural gas, as well as allied support activities, and will be available with input tax credit (ITC).

Increasing Cost Burden

Experts caution the decision will compress profitability since crude oil and natural gas themselves are kept out of GST. With no provision to set off these service taxes against sales of products, firms will be saddled with stranded costs. This is at a time when international crude and gas prices have plummeted since April 2025 on account of economic downturn and OPEC+ supply curbs, further weakening project economics.

There are marginal E&P opportunities that could become unviable, analysts added, as Indian operations’ competitiveness against global counterparts could decrease.

Market Reaction – Nifty Oil & Gas Falls

The Nifty Oil & Gas index fell 0.96 percent to close at 10,923.15, sliding from its intraday high of 11,076.10 to its intraday low of 10,916.45 during the day. The sector lagged the overall market as the Nifty 50 closed at 24,734.30, up 0.08 percent.

In Thursday’s trade, natural gas and energy-related stocks showed mixed movement. Among the key laggards, GAIL (India) slipped the most, down 1.9% to ₹174.71, followed by Oil India, which declined 1.5% to ₹396.65. Petronet LNG eased 1% to ₹274.50, while ONGC and Reliance Industries also edged lower, falling 0.8% and 0.6% to ₹237.18 and ₹1,364.70 respectively.

On the other hand, select counters managed to stay resilient. Mahanagar Gas emerged as the top gainer, advancing 2.65% to ₹1,319.00. Gujarat State Petronet gained 0.6% at ₹303.85, while Castrol India and Gujarat Gas inched up 0.5% and 0.2% to close at ₹199.55 and ₹443.30 respectively.

Outlook

The hike represents a major policy shift at a delicate moment for the sector. While input costs are increasing and realizations are under strain, the industry has tighter margins before the September 22 implementation date. Market players are anticipating the policy change to bear more down on valuations of upstream operators and E&P-centric service providers.

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