Shares of upstream oil majors ONGC and Oil India were muted after the Indian government scrapped windfall taxes on petroleum crude.

What Happened: The windfall tax on domestically produced crude oil has been slashed to zero, the Ministry of Finance said in a notification on Tuesday. The changes will take effect from September 18.

In July 2022, the government started imposing a windfall tax on crude oil companies, which covered gasoline, diesel and aviation fuel exports. It had imposed a tax of ₹1,700 per tonne on July 19.

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Governments impose a windfall tax on industries that experience sudden, substantial profits, typically as a result of an extraordinary event. The Indian government revises the windfall tax every 15 days, reflecting the average oil prices over the preceding two weeks. In its most recent revision on August 30, the tax stood at ₹1,850 per tonne.

Earlier this month, oil companies showed mixed trading after prices of Brent crude dipped below $70 (₹5,877) for the first time in nearly three years. The slump in prices came after the Organization of the Petroleum Exporting Countries (OPEC) lowered its demand outlook for 2024 and 2025.

Price Action: ONGC and Oil India both lost over 2% each during early trade. Shares of ONGC were muted at ₹294.85 whereas Oil India was down 1.315 to ₹607.40 on Wednesday.

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