Question of the Day – Windfall gains tax
QOTD March 8,2026
With reference to the windfall gains tax on crude oil and petroleum products in India, consider the following statements:
- Windfall tax is imposed when companies earn unusually high profits due to external factors such as sudden global price increases.
- India introduced windfall tax on domestic crude oil production and exports of petroleum products in 2022.
- The government recently removed the windfall tax because global crude oil prices have stabilised and refining margins declined.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (d) 1, 2 and 3
Explanation:
Statement 1-Correct
Windfall tax refers to a tax imposed on companies when they earn extraordinary profits due to external circumstances, such as sharp increases in global commodity prices, rather than due to efficiency or innovation.
Statement 2-Correct
India introduced windfall taxes in July 2022 on domestic crude oil production and on the export of petrol, diesel and aviation turbine fuel (ATF) when global oil prices surged after geopolitical tensions.
Statement 3-Correct
The government removed the tax after global crude prices moderated and refining margins declined, making the levy less necessary and helping improve competitiveness of Indian refiners in global markets.
Why in news–
The removal of the Windfall Gains Tax on crude oil production and exports of petrol and diesel is in news because the Government of India has recently decided to abolish this tax. The tax was originally introduced in July 2022 after global crude oil prices surged following the Russia–Ukraine War, which led to extraordinary profits for oil producers and exporters. It aimed to capture these unexpected gains and increase government revenue. However, global crude oil prices have since moderated significantly, reducing the profit margins of oil companies and lowering the tax collections from this levy. As a result, the government decided that continuing the tax was no longer necessary. The removal is expected to improve the profitability of domestic oil producers, encourage petroleum exports, and simplify the taxation structure in the energy sector. Therefore, the decision has gained attention in the context of India’s energy policy and fiscal management.
There are more questions from this topic that you should practice to make your concepts stronger.
Practice Questions (PQ)
PQ1. Consider the following statements regarding India’s petroleum taxation framework:
- Windfall tax on crude oil production was collected as a Special Additional Excise Duty (SAED).
- The tax rates were revised frequently depending on global oil prices and refining margins.
- The windfall tax applied only to foreign oil companies operating in India.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (a)1 and 2 only
Explanation
Statement 1-Correct
The windfall levy in India was implemented through Special Additional Excise Duty, imposed on domestically produced crude oil and exports of certain petroleum products.
Statement 2-Correct
Unlike normal taxes, the windfall tax rates were reviewed and adjusted frequently, sometimes every two weeks, depending on global crude prices and refining margins.
Statement 3-Incorrect
The tax applied to all producers and exporters operating in India, including domestic companies like ONGC as well as private refiners such as Reliance Industries.
PQ2. With reference to windfall taxes on oil companies globally, consider the following statements:
- Several countries introduced windfall taxes after the surge in global oil prices following the Russia-Ukraine conflict.
- Windfall taxes are generally permanent taxes applied irrespective of market conditions.
- The objective of windfall taxes is often to redistribute extraordinary profits or support government finances.
Which of the statements given above are correct?
a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
Answer: (b)1 and 3 only
Explanation:
Statement 1-Correct
Many countries, including India, the UK and several European nations, introduced windfall taxes when global oil and gas companies recorded unusually high profits during the energy crisis.
Statement 2-Incorrect
Windfall taxes are typically temporary measures and are imposed only when extraordinary profits occur due to exceptional market conditions.
Statement 3-Correct
Governments often use windfall taxes to capture part of the unexpected profits and use the revenue for subsidies, welfare spending or fiscal stabilisation.
PQ3. Consider the following statements regarding India’s petroleum refining sector:
- India is one of the largest petroleum product exporters in Asia.
- Export duties on refined petroleum products can influence refinery profitability and export competitiveness.
- India imports crude oil but exports refined petroleum products such as diesel and petrol.
Which of the statements given above are correct?
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (d) 1,2 and 3
Explanation:
Statement 1-Correct
India has one of the largest refining capacities in Asia, enabling it to export large volumes of refined petroleum products.
Statement 2-Correct
Export duties such as windfall taxes can reduce refinery margins and affect competitiveness in international markets.
Statement 3-Correct
Although India imports a large share of its crude oil, it processes it in domestic refineries and exports refined products like diesel, petrol and aviation turbine fuel.
Previous Year Question (UPSC Prelims)
Consider the following statements:
- India has moved towards market-determined pricing of petrol and diesel.
- The government continues to regulate the retail prices of petrol and diesel directly.
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) both 1 and 2
d) neither 1 nor 2
Answer: (a)1 only
Explanation
Statement 1-Correct
India introduced market-linked pricing for petrol (2010) and diesel (2014), allowing oil marketing companies to revise prices based on global crude oil prices and exchange rates.
Statement 2-Incorrect
The government does not directly regulate retail prices now, though it may influence them indirectly through tax changes, subsidies or policy decisions.
