The Centre has proposed to bar state governments from levying taxes and cesses of any form on mineral leasing rights or land bearing minerals, and bring regulation of such land exclusively under it. The proposals in the Mines and Minerals (Development and Regulation) Amendment Bill, 2026 tabled in the Lok Sabha on Monday, aim to practically restrict states’ taxes on these natural resources to the royalties charged on mineral value, and may help reduce the crippling tax incidence in the sector.
The Bill also specifically mentions that mineral quantity, value or royalty itself cannot be the basis for states to impose taxes, effectively depriving them of all options to impose any tax on the sector other than royalty.
The Centre’s move also aims to use its legislative powers to overturn a 2024 judgement by a Supreme Court Constitution bench that empowered mineral-rich state governments to levy independent taxes and cesses on mineral rights and mineral-bearing lands.
The tax burden on India’s mineral sector is among the highest in the world, with the effective tax rate, including the corporation tax, exceeding 50-55% of revenue while the global average is 35%-40%. This is believed to be one reason for the dismal overall performance of the sector, despite sweeping reforms undertaken in both hydrocarbon and non-hydrocarbon minerals in the past decade to boost investments, domestic production and value addition.
The gross value added (GVA) in “mining and quarrying” lost its share in overall GVA from 4.8% in 1999-2000 to just 2% in recent years. While bauxite production has been stagnant over the last decade, chromite output has declined. A fall in domestic copper production has led to a tenfold jump in imports of this base metal in the last decade. The country is also heavily import-dependent for critical minerals, including lithium and cobalt, vital inputs for newage, tech-driven manufacturing.
“Multiple and inconsistent taxes hamper development of the mineral industry and slow down economic growth resulting in cascading tax effect and high compliance costs,” the government said, explaining the rationale behind the new Bill. An excessive tax burden at the extraction stage or otherwise may ultimately increase the cost of goods and services and, consequently, the cost of living for the common citizen in the country, it added.
“The proposed amendment comes against the backdrop of the Supreme Court’s MADA (Mineral Area Development Authority) judgment, following which additional state levies and demands raised concerns regarding fiscal burden, legacy liabilities, litigation, and uncertainty for the mining sector,” said Sidhartha Jain, tax partner at EY India. In the July 2024 judgement, the apex court upheld state governments’ authority to tax mining lands but clarified that royalty payments to the central government aren’t taxes.
“The amendment appears to address some of these issues by invalidating past levies that have neither been deposited nor recovered, protecting amounts already collected from refund claims, and providing a framework for future State taxation,” Jain said. “This is expected to enhance certainty and predictability, supporting investment and strengthening the long-term competitiveness of the mining sector and its downstream industries.”
Several taxes are levied on the sector, including auction premium, royalty, District Mineral Foundation (DMF) which is applied at 30% of royalty for rehabilitatiion puyposes,, National Mineral Exploration Trust (NMET) levied by the Centre at 2-3% of royalty, and the Goods and Services Tax applied on mining leases under the reverse charge mechanim.
As per the MMDR (Amendment) Act, 2015, state governments must establish DMFs in all districts affected by mining-related operations. While the central law faciliates the DMF levy, states approprte the funds. The Centre has expressed concerns about the manner in which the MMF proceeds are used, and put in place oversight mechanism.