Union Budget 2026-27 Excise Duty Relief for Biogas Blended CNG

Excise Duty Exemption Signals Policy Shift Towards Renewable Gas

The Union Budget 2026–27 has introduced a targeted excise-duty exemption on the biogas / compressed biogas (CBG) component used in blended compressed natural gas (CNG). This fiscal measure marks a clear policy intent to accelerate the adoption of renewable gas while reducing India’s structural dependence on imported fossil fuels. Importantly, the move resolves a long-standing issue of double taxation that had weakened the commercial viability of biogas blending.

Addressing the Double Taxation Problem

Until now, blended CNG was taxed in the same manner as pure CNG. A 14% central excise duty , along with 5% GST and state-level VAT, was levied on the entire volume—irrespective of the renewable biogas content.

Under the new Budget provision, central excise duty will no longer apply to the biogas portion of blended CNG. This selective exemption lowers the effective tax incidence, directly improving price competitiveness for city gas distribution (CGD) companies and making higher blending ratios economically attractive.

Energy Security and Alignment with SATAT Goals

India continues to rely heavily on imported natural gas, with liquefied natural gas (LNG) accounting for nearly half of domestic consumption. To address this vulnerability, the Ministry of Petroleum and Natural Gas launched the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative in 2018.

SATAT envisions 15 million tonnes of CBG production , but progress has been modest so far, with only around 190 CBG plants operational. The excise exemption strengthens the policy ecosystem required to meet India’s commitment of a 5% CBG blending obligation by 2028–29 .

Built-in Incentives for Higher Blending

The design of the exemption ensures that benefits scale with blending levels:

• At 5% CBG blending , excise duty applies only on 95% of the volume

• At a 50:50 blend , half the gas volume is excise-free

This creates a clear financial gradient that rewards CGD companies for increasing renewable content, encouraging long-term investments in CBG offtake contracts, storage, and distribution infrastructure.

State-Level Taxes and the Road Ahead

Despite the Centre’s excise relief, blended CNG is often categorised as natural gas by states and subjected to VAT ranging from 5% to over 15% . Analysts note that the full impact of the reform will depend on whether states also exempt the CBG component from VAT .

If aligned with rural renewable energy schemes and waste-to-energy programmes, the measure could significantly strengthen India’s circular economy while reducing methane emissions and import bills. However, outcomes will hinge on Centre–state coordination and faster rollout by CGD networks.

Exam-Focused Key Points

• Union Budget 2026–27 exempts biogas portion of blended CNG from central excise duty

• Reform corrects double taxation that discouraged biogas blending

• SATAT