Govt introduces bill to bar state levies on mining, enhance investor interest

New Delhi: The government introduced an amendment bill in the Lok Sabha on Monday to bar states from imposing taxes or any other levy on mining and minerals, aiming to ease financial burden on the sector and improve the commercial viability of mining operations.

Through the Mines and Minerals (Development and Regulation) Amendment Bill, 2026, the government also aims to take control of the regulation of mineral-bearing lands containing mineral contents as prescribed in the Mines and Minerals (Development and Regulation) Act of 1957.

"Insertion of a new section 9D in the MMDR Act, which provides that 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," said the bill.

The proposal comes over two years after the Supreme Court affirmed states' rights to independently tax mines and mineral-bearing lands, in a ruling that said that royalty paid to the central government on minerals was not a tax.

The government said that the bill aims to reduce the financial burden on mining operations and make them commercially attractive for investments. The bill states that an "excessive" fiscal burden makes mining operations commercially unviable, discourages mineral extraction, adversely affects mineral production and in some cases, leads to mine closures.

"And any additional and unpredictable costs may disproportionately lead to an adverse impact on small and medium-scale mining operators. Multiple and inconsistent taxes hamper the development of the mineral industry and slow down economic growth, resulting in a cascading tax effect and high compliance costs," it said.

The bill, however, proposes that any such tax, cess or other levy on mineral rights or on mineral-bearing lands already deposited with or recovered by the state government before the amendment bill is passed and comes into effect shall not be liable to be refunded.

Queries emailed to revenue departments of the mineral-rich states of Odisha, Chhattisgarh, Jharkhand, Rajasthan, Madhya Pradesh and Karnataka were not immediately answered.

Sidhartha Jain, tax partner with EY India, said that 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 over tax burden, legacy liabilities, litigation and uncertainty for the mining sector.

"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. This is expected to enhance certainty and predictability, supporting investment and strengthening the long-term competitiveness of the mining sector and its downstream industries," he said.

In a landmark judgement in the Mineral Area Development Authority vs Steel Authority of India Ltd (SAIL) case, the Supreme Court ruled that the power to tax mineral rights resides with state governments, and that royalty on minerals is not a tax.

Delivered on 25 July 2024, the top court affirmed states’ rights to impose cess on mining lands and quarries, while clarifying that the royalty paid to the central government by mining operators did not constitute a tax. The judgment, while securing state governments’ right to tax within their legislative domain according to fiscal federalism principles, sparked concerns over its potential to discourage investment in the mining sector, according to experts.

The existing Mines and Minerals (Development and Regulation) Act, 1957 gives the central government regulatory control over mines and the development of minerals, while states have key powers relating to mining leases and taxation.

While the law allows the Centre regulatory control over mines, it does not allow similar power over mineral-bearing land. The bill proposes to define mineral-bearing land as land containing minerals according to parameters that the central government will prescribe. The new bill proposes to include such land within the Centre's regulatory ambit.

"The Union will take under its control the regulation of mineral-bearing lands having the mineral contents in accordance with the parameters prescribed by the Central government under the MMDR Act. This is in addition to the existing provision which declares the Union’s control over the regulation of mines and the development of minerals," it said.

The bill aims to speed up exploration and production of critical minerals including lithium, nickel, and cobalt, among others. In the past few years, the government has made efforts to boost local production of these critical minerals to reduce dependence on China. These minerals are critical raw materials for renewable energy components, defence equipment, telecommunication equipment, among others.