Budget 2026: Biogas Value to Be Fully Excluded From Central Excise on Biogas-Blended CNG [Read Finance Bill 2026]

Among many announcements made during the Union Budget 2026 presentation, Finance Minister Nirmala Sitharaman has proposed a strategy to increase the use of cleaner fuel in India. The purpose of this measure is to provide further support to the bioenergy sector and promote the move to cleaner fuels.

The proposal was made as part of the Finance Bill 2026 submitted to Parliament in February 2023 under the Union Budget 2026-27. The main objective of this proposal is to entirely exclude the value of biogas and compressed biogas (CBG) from the amount that is used to calculate the applicable excise duty for the purpose of central government taxation.

At the present time, the excise duty that is imposed on blended CNG is charged on the full value of the blended fuel at the time that it is manufactured. In the past, the excise duty on blended CNG included both the value of the conventional fuel used in the manufacturing process as well as the value of the renewable fuel.

The Amendment

In the legislative proposal included in the 2026 Budget, attempts were made to amend the way in which biogas and CBG are treated for the purposes of the excise duty:

• The proposal proposes that the entire value of biogas/CBG contained in the blended CNG will be excluded from the excisable transaction value, and
• All applicable central, state and union territory taxes paid on biogas/CBG will also be excluded from the valuation base for central excise duty.

The change was made by way of an amendment to Notification No. 11/2017-Central Excise through Notification No. 02/2026-Central Excise and will be effective from 2 February 2026. The modifications made by the 2026 Budget will replace the previous Notification No. 05/2023-Central Excise which limited the exemption only to the GST component of the biogas value, and has been rescinded.

Rationale

The exclusion of biogas value from excise duty is not a general tax cut but a targeted valuation policy change within the central excise regime. This policy change will have a positive effect, as it will:

1. Lowers the effective excise burden on blended CNG by reducing the assessable value on which duty is computed;
2. Aligns excise valuation with national energy policy goals designed to promote cleaner fuels by treating renewable inputs more favourably than fossil components;
3. Creates a coherent fiscal approach that removes double taxation on the renewable portion of the blend, considering both GST and excise.

From an indirect tax analysis perspective, this development represents a value exclusion rather than an outright excise exemption and has significant implications for compliance, pricing, and the interpretation of the applicable law.

Alignment With Broader Clean Energy Goals

The Budget 2026 proposals were part of a larger set of incentives targeted at renewable energy and sustainable fuel adoption. The Government is focused on clean energy and its development through renewable resources, biofuels and emerging markets such as battery production and solar glass manufacturing.

This change to excise valuation regulations favouring biogas-blended fuels accomplishes several objectives.

1. It is expected to lower the operational cost for blended CNG producers by decreasing their overall excise liability.
2. It is intended to facilitate the use of biogas/CBG as a renewable input for transportation and industrial applications.
3. It advances the de-carbonization of energy through the promotion of lower carbon alternatives.

Additionally, this measure supports current government initiatives such as Sustainable Alternative Towards Affordable Transportation (SATAT). The SATAT program is designed to promote the establishment of CBG plants nationally by providing manufacturers with guaranteed offtake and financial assistance.

Legal and Commercial Impact

Legally, the excise threshold adjustment will require manufacturers and excise compliance professionals to do the following:

• Review and update their excise duty computation procedures as applied to biogas-blended CNG;
• Align their pricing strategies with the reduced excise incidence; and
• Keep watch on enforcement by federal excise authorities that may have an impact on classification and valuation issues due to potential compliance audits or investigations.

From a commercial perspective, the reduction of the excise tax burden on the renewable portion of the blended fuel will:

• Improve the market competitiveness of biogas blended CNG to fossil fuels;
• Encourage investment in biogas/CBG production infrastructure; and
• Facilitate greater acceptance by consumers who are price-sensitive and environmentally conscious.

The complete exclusion from the central excise valuation of any biogas component in the biogas-blended CNG, as proposed in Budget 2026, constitutes a well-defined legal modification which is well-grounded in policy considerations. This is not a simple tax reduction; it is an overestimate adjustment, bringing the computation of excise duty up to date with the emphasis of India's future energy transition goals.

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