Windfall Gain and Taxes

Windfall is a fairly known term among finance professionals. As I read, windfall originally referred to fruit that the wind blew from the trees. There was no need to put effort into picking it from tall trees. It is unexpected and easily gained.

Suppose, you win a lottery; it is an unexpected gain. When you want to buy a product, the shopkeeper says, it has an offer of buy one, get one free! It is an unexpected gain.

Our tax department is a fair-weather friend. They want to be your partner in windfall gain. You win Rs.1,00,000 in a lottery, Income Tax department wants Rs.30,000 as their share (taxes). It is immaterial whether you made a loss in business or you had only lottery income for the year! Where there is a will, there is a way. Likewise, where there is a gain, there is a tax

In the last two days, you can find headlines on WINDFALL TAX on oil companies. Over 80% of India’s oil consumption is met by imports. Due to the Ukraine-Russia war, crude prices have risen sharply in recent months. But the Government can’t pass on the entire burden (may even take excise duty cut to check the bloating inflation) of the price hike to the end-users. This has resulted in a shortfall in revenue collection.

So, the government looked at alternate avenues of tax collection and found two attractive means –

Levy a Cess on crude producing companies

India also has domestic crude producing companies (to meet the balance of 20% of oil). They sell the oil to domestic refineries at international parity prices. As a result, domestic crude producers are making windfall gains! The government said, give my share! They levied Rs.23,250 per tonne of crude production as Cess. This action won’t impact the fuel prices of end-users.

Windfall Tax on exports

Though India is the net importer of oil, the refining companies export a small portion of petrol, diesel, and Aviation Turbine fuel. They export at globally prevailing prices, which are very high. This means, that through exports, these companies like ONGC, and RIL is showing huge profits. These additional profits are not on account of their hard work, it is an unexpected gain, call it a windfall gain.

Will the government see this and keep quiet? They levied Special Additional Excise Duty (SAED) of Rs.6 per litre of petrol and Rs.13 per litre of diesel. We call this levy windfall tax.  (there is nothing called windfall tax, it is excise duty) Again, it does not have any implications on domestic oil prices.

It is estimated that the Union Government will generate close to Rs.95,000 Crore through these additional taxes. To an extent, it will help to balance heavy import bills and get better rupee exchange rates.  Are we the first to levy such taxes? No. We follow the west.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 28+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional, Registered Valuer (F&SA) and Social Auditor.Prasad welcomes your comments and questions. Please email him at

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