On Monday, the central government introduced a Bill in the Parliament that seeks to bar states from taxing minerals. If passed, the law will provide a welcome relief to the mining sector. Mint explains how minerals have been historically taxed and the significance of the proposed law.
What is the new Bill about?
The Centre is amending the Mines and Minerals (Development and Regulation) Act, 1957, by introducing a new section, 9D, which specifically prohibits states from imposing any levies on mined minerals. It states “no tax, cess or such other levy (by whatever name called) shall be imposed by the state government on mineral rights; or mineral bearing lands, either based on mineral quantity, mineral value, royalty or otherwise, except in accordance with such conditions or restrictions as may be prescribed by the Central Government”.
The amendment comes two years after the Supreme Court upheld states' right to tax minerals.
How are minerals taxed in India?
Before 1990, many states levied a cess on mineral production under their own laws, usually linked to the royalty, which is fixed by the Centre but collected by states. In 1989, the Supreme Court held that royalty is a tax and that states do not have the power to tax minerals, as such power is governed by the MMDR Act. In 1992, the Centre increased the royalty to compensate states for revenue losses resulting from the court order. In 2004, the Supreme Court, in another case, held that royalty was not a tax and that states could tax minerals.
How was this divergent view resolved?
Empowered by the new Supreme Court order, a few states, such as Andhra Pradesh, Madhya Pradesh, and Chhattisgarh, began levying taxes on minerals. In 2011, to address the divergent opinions on whether royalty was a tax and whether states could tax minerals, the matter was referred to the constitutional bench of the apex court. In July 2024, it held that royalty was not a tax and states could tax minerals.
What has happened since?
For the cash-strapped states, the final top court order opened a new revenue stream. They quickly enacted laws to tax minerals. Jharkhand introduced the Mineral Bearing Land Cess Act in 2024, levying a cess on iron ore ( ₹400/tonne), coal ( ₹250/tonne) and limestone ( ₹40/tonne). Tamil Nadu introduced its law in 2025 and imposed a levy of ₹160/tonne on limestone and ₹250/tonne on lignite, among others. Karnataka, too, introduced a Bill in 2024. It is awaiting the governor’s assent. Andhra Pradesh, Madhya Pradesh, and Chhattisgarh continue to charge according to their earlier laws.
How will the new law help?
Some states, such as Tamil Nadu, have begun to see mineral taxes as a cash cow. For instance, its ₹160/tonne tax on limestone, a key raw material in cement production, has hurt manufacturers' competitiveness in the state, as royalties and taxes account for almost 50% of the mineral's value. Today, excessive fiscal burden runs the risk of slowing mineral extraction, hurting the production of metals and other essential commodities, and eventually slowing economic growth. The new law seeks to ease the fiscal burden on the mining sector, improve its viability and make it commercially attractive for investments.