Reflecting India’s efforts to transition away from fossil fuels and reduce its dependence on imported natural gas, the Union Budget 2026-27 proposes to exempt central excise duty on the value of biogas or compressed biogas (CBG) contained in blended compressed natural gas (CNG). The move is intended to improve offtake of blended CNG by correcting what industry players describing as double taxation. Until now, both pure and blended CNG attracted a 14 per cent central excise duty, in addition to 5 per cent GST (goods and services tax) and state-level VAT (value-added tax).
India’s reliance on imported gas remains substantial. In 2024, it imported liquefied natural gas (LNG) worth $14.98 billion, according to World Bank trade data, accounting for roughly half of domestic natural-gas consumption. To address this energy-security challenge, the Union Ministry of Petroleum and Natural Gas in 2018 launched the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme, targeting the production of 15 million tonnes of CBG. Progress, however, has lagged behind ambition. Only about 190 CBG plants have been commissioned so far, even as India has committed to a 5 per cent CBG blending obligation by 2028–29. City gas distribution (CGD) companies have struggled to develop the infrastructure needed to ensure offtake and raise blending levels.
Under the new provision, the biogas component of blended CNG will be excluded when calculating central excise duty. “This reduces the tax burden on the biogas portion and makes blending more affordable, which should encourage city gas distribution companies,” says Sanjay Ganjoo, director-general of the Indian Federation of Green Energy.
The benefit rises with higher blending levels, explains Shashi Hegde, director at Hycons Bioenergy, a CBG technology provider in Bengaluru. If a retail outlet sells a mix of 5 per cent CBG and 95 per cent CNG, then 5 per cent of the volume is exempt from the excise. But if a gas distribution company sells a blend of 50 per cent CBG and 50 per cent CNG, half of the volume is exempt from the excise. That creates a clear incentive to increase blending and move closer to national targets, Hegde says.
Combined with the continuation of the Gram Urja Swaraj programme—aimed at promoting renewable energy in rural areas—the excise exemption sends a long-term signal of government support for renewable gas, even if adoption remains uneven, says Hegde. “With sustained support and greater citizen participation, these steps can accelerate rural energy independence and make biogas a meaningful part of India’s clean energy transition,” he adds.
Rajiv Sikka, a former gas-sector executive, also notes that although current blending levels are below 1 per cent, the policy improves cost economics and may prompt city gas distribution companies to invest more actively in offtake infrastructure.
While CBG is subject to GST, blended gas sold through city gas distribution networks is often treated as natural gas, making it liable for state-level VAT ranging from 5 per cent to over 15 per cent. “The Central Government has taken an important and forward-looking step by extending excise relief to encourage CBG blending and infrastructure development. Building on this initiative, complementary action by State Governments—through exemption of VAT on the CBG portion of blended CNG—would further strengthen the CBG sector,” says Lav Kumar, additional director at the Centre for High Technology under MoPNG.
Whether the excise exemption leads to meaningful gains in blending and infrastructure development will depend largely on state-level tax decisions—and on how quickly city gas distribution companies respond to the improved incentives.