On minerals and mines, strike a new federal balance

The Mines and Minerals (Development and Regulation) Amendment Bill, 2026 was recently passed by Parliament, restricting states' ability to levy taxes on mineral rights and lands. The central government aims to create a more stable environment for investment, while preventing higher levies from increasing overall costs. States, however, are concerned about the impact on their revenues and the broader implications for fiscal federalism.

The bill comes in response to a recent Supreme Court ruling allowing states to recover backdated taxes from the sector, which led to some states introducing new mineral-bearing land taxes. For example, Jharkhand and Tamil Nadu have imposed taxes on iron ore and limestone, respectively. Across the country, these taxes and royalties vary in nature and rates.

The amendments may also be driven by a desire to standardize mineral prices, aiming to attract more investor interest. Currently, the effective tax rate on mining revenues in India is higher than 50%, while other countries see rates in the 35 to 40% range. While state governments acknowledge that they will still capture the lion’s share of mining revenue, they worry about further reductions in their tax powers, particularly in mineral-rich states such as Odisha, Jharkhand, and Chhattisgarh.

A government fact-sheet notes that states will retain the majority of mining revenue, but emphasizes the need to address the tensions between the central and state governments. The central government has also launched a critical mineral mission, emphasizing the importance of a more predictable mining framework to spur investment in a sector crucial for the country’s growth.