Windfall tax effect on crude oil prices

Key points:

• Windfall taxes target extraordinary profits arising from external market events rather than operational improvements.
• The levy is imposed through the Special Additional Excise Duty (SAED) and reviewed periodically.
• India reduced the windfall tax on crude oil to ₹0 per tonne in September 2024, then abolished it in December 2024.
• The tax was reintroduced in March 2026 following geopolitical tensions that pushed global crude prices higher.
• Windfall taxes can affect oil company profitability, government revenue, investment decisions, and domestic fuel markets.

When the tax was first introduced on 1 July 2022, international crude oil prices had risen significantly following the Russia–Ukraine conflict. The levy was designed to tax extraordinary profits earned by oil producers and refiners during this period of elevated prices.

During the following two years, the government reviewed the tax regularly and revised the rates according to movements in international crude oil prices. As prices moderated, the windfall tax on domestically produced crude oil was reduced to ₹0 per tonne, effective 18 September 2024, while SAED on petrol, diesel and aviation turbine fuel exports was also reduced to zero.

The government subsequently abolished the levy on 2 December 2024, citing relatively stable crude oil prices and improving market conditions. However, renewed geopolitical tensions in the Middle East caused another sharp rise in crude oil prices during early 2026. As a result, India reintroduced the windfall tax on 26 March 2026 and later revised certain export duties in April 2026 to reflect changing market conditions.

Explore the India 2026 Budget highlights to learn about the latest policy measures affecting investors, businesses, and the economy.

The table below summarises how a windfall tax applies to crude oil companies.

India introduced its windfall tax on 1 July 2022 after crude oil prices surged following the post-pandemic recovery and the Russia–Ukraine conflict. Implemented through the Special Additional Excise Duty (SAED), the levy was reviewed periodically based on global crude oil prices. The government gradually reduced the tax, abolished it in December 2024 as prices stabilised, and reintroduced it in March 2026 following renewed geopolitical tensions.

The windfall tax directly affects oil producers by reducing post-tax profits, which may limit funds available for exploration, expansion and other capital investments. Changes in export duties can also influence refining margins and the profitability of petroleum exports.

Major Indian energy companies, including ONGC, Reliance Industries, Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), have been impacted by revisions to the tax. While the government considers the levy a way to collect a share of extraordinary profits and support domestic fuel availability during periods of high crude prices, critics argue that frequent policy changes can create uncertainty and discourage long-term investment in the oil and gas sector.

A windfall tax is designed to tax extraordinary profits earned by companies during periods of unusually high commodity prices. In India's oil sector, this levy has evolved from a temporary measure introduced in July 2022 into a policy tool that can be adjusted according to changing global market conditions.

The government's approach has demonstrated that windfall taxes are not permanent. After multiple revisions, the levy was reduced, abolished in December 2024 as crude oil prices stabilised, and reintroduced in March 2026 following another surge in international oil prices caused by geopolitical developments. This flexible approach allows policymakers to respond to changing market conditions while balancing revenue requirements and domestic fuel availability.

For oil companies, windfall taxes can reduce profitability, influence investment decisions and affect future production plans. For governments, they provide an opportunity to collect a share of the extraordinary profits generated during periods of exceptional price increases. As global crude oil markets continue to be influenced by geopolitical events and supply disruptions, windfall taxes are likely to remain an important policy instrument that governments may use whenever extraordinary profits arise in the energy sector.

Disclaimer: This article is based on information available in the public domain as of 29 June 2026. Government policies, tax rates, regulations, and market conditions may change over time. Readers should refer to the latest official government notifications and consult a qualified financial or tax adviser before making any financial or investment decisions based on this information