ONGC, Oil India feel the heat as government raises windfall tax on domestic crude oil

While ONGC shares were down 0.68 per cent, Oil India shares declined 0.22 per cent in early trade.

As per the new regulations, the SAED on crude petroleum has been hiked from Rs. 1,600 per tonne to Rs. 4,250 per tonne. | Image: PTI

With the government increasing the windfall tax on crude oil, shares of state-run oil companies ONGC and Oil India felt pressure on Dalal Street on Monday. While ONGC shares were down 0.68 per cent in early deals, the Oil India stock was down 0.22 per cent in the morning hours.

What is the government's decision on the windfall tax?

On Monday, the government announced a considerable hike in the Special Additional Excise Duty (SAED) on certain petroleum products, effective Monday (August 1, 2023).

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As per the new regulations, the SAED on crude petroleum has been hiked from Rs. 1,600 per tonne to Rs. 4,250 per tonne.

Along with that, the SAED on diesel has also been revised, and the duty has been increased from nil per litre to Rs. 1 per litre.

While there is a change in SAED for diesel, it will remain unchanged for petrol and aviation turbine fuel (ATF), as per the government's notification .

There will be nil taxation on these two products.

Earlier, the government had reimposed the windfall tax on domestic crude oil production at Rs 1,600 per tonne, effective July 15.

ONGC

A day after the government announced its decision, the share price of the company slipped 0.59 per cent to Rs 175.9.

ONGC shares have fared well in the last five sessions, with a jump of 1.56 per cent. In the last month, the stock has soared 7.77 per cent.

Oil India

Oil India reversed mild initial gains, slipping 0.22 per cent. Oil India shares too seem to feel the heat of the hike in windfall tax. The stock has fared well in the past five sessions, up 4.16 per cent.

In the past month, Oil India shares have soared 12.42 per cent.

Analysts' Views

Zee Business analyst Kushal Gupta recommends buying Oil India shares in the spot market for a target of Rs 282 with a stop loss at Rs 272.

Zee Business analyst Varun Dubey recommends buying the Rs 177 put option of ONGC for a target of Rs 5.5 with a stop loss at Rs 3.5.

What is windfall tax?

WIndfall tax is levied by the Centre on certain industries that experience unexpectedly huge profits largely due to external factors.

In July 2022, the government for the first time introduced the windfall tax on crude oil producers and exporters of petrol, diesel, and jet fuel to encourage private refiners to sell fuel products domestically instead of shipping them overseas.

The government reviews windfall tax every fortnight in view of global benchmark oil prices.

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