India’s plan to boost oil and gas production will be hit by the rationalisation in Goods and Services Tax (GST) rates announced on Wednesday as support services and other professional, technical and business services to exploration, mining or drilling of petroleum crude or natural gas or both attracts a levy of 18 per cent from the current 12 per cent with input tax credit.
As crude oil and natural gas are outside the purview of GST, an increase in the cost of exploration, development and production (owing to higher GST on services like hiring of drilling rigs etc) without an offset available on sale of these products will lead to stranded taxes, rating agency ICRA Ltd said in a note.
India’s oil and gas producers such as Oil and Natural Gas Corporation Ltd (ONGC) and Reliance Industries Ltd require support services of drilling rigs, offshore support vessels, offshore supply vessels and anchor handling tug cum supply vessels for their oil and gas exploration activities.
“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 companies have reduced. Accordingly moderating realisations and increase in cost of production would be a double whammy for the upstream industry and would adversely impact the returns,” ICRA added.