Budget 2026 Boosts Biogas Blending Through Excise Exemption

The Union Budget 2026-27 has proposed an excise-duty exemption on the biogas or compressed biogas (CBG) component in blended compressed natural gas, signalling a stronger policy push to scale up renewable gas use and reduce India’s dependence on imported fossil fuels. The move aims to correct a long-standing issue of double taxation that had dampened incentives for biogas blending.

Excise Relief to Correct Double Taxation

Under the new provision, central excise duty will not be levied on the biogas portion of blended CNG. Until now, both pure CNG and blended CNG attracted a 14 per cent central excise duty, in addition to 5 per cent GST and state-level VAT. By excluding the biogas component from excise calculations, the Budget lowers the effective tax burden and improves the cost competitiveness of blended gas for city gas distribution companies.

Link to Energy Security and SATAT Targets

India remains heavily reliant on imported natural gas, with liquefied natural gas imports meeting nearly half of domestic demand. To address this, the Ministry of Petroleum and Natural Gas launched the Sustainable Alternative Towards Affordable Transportation scheme in 2018, targeting 15 million tonnes of CBG production. Progress has been slower than planned, with around 190 CBG plants commissioned so far, against a national commitment to achieve a 5 per cent CBG blending obligation by 2028–29.

Incentive Structure Encourages Higher Blending

The excise exemption increases in value as blending levels rise. For instance, if a retail outlet sells CNG blended with 5 per cent CBG, only 95 per cent of the volume attracts excise duty. At a 50:50 blend, half the volume is exempt. Industry experts say this creates a direct financial incentive for city gas distribution companies to raise blending levels and invest in offtake infrastructure.

Important Facts for Exams

• Excise duty exempted on the biogas portion of blended CNG.
• Move aims to correct double taxation on biogas blending.
• SATAT scheme targets 15 million tonnes of CBG production.
• India has committed to a 5% CBG blending obligation by 2028–29.

Role of States and Long-Term Impact

While the Centre has provided excise relief, blended CNG is often treated as natural gas by states and subjected to VAT ranging from 5 per cent to over 15 per cent. Experts argue that further gains will depend on whether states exempt the CBG portion from VAT. Combined with continued support under rural renewable energy programmes, the excise exemption sends a long-term signal in favour of renewable gas, though its impact will hinge on coordinated Centre–state action and faster infrastructure development by city gas distributors.