Parliament curbs states’ power to tax minerals

Why in the News

Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026. It bars states from imposing specified levies on mineral rights except on terms set by the Centre, reopening a fiscal federalism dispute.

What does the Mines and Minerals (Development and Regulation) Amendment Bill, 2026 do?

1. Levy restriction: States cannot impose specified taxes on mineral rights or mineral-bearing land except as the Centre prescribes.
2. Dues extinguished: Pre-amendment dues estimated near 2 lakh crore rupees stand extinguished.
3. Scope: The Bill applies to major minerals such as iron ore, coal, bauxite, manganese, and copper.

Why is this a fiscal federalism flashpoint?

1. 2024 ruling reversed in effect: The Supreme Court in 2024 upheld states’ power to tax mineral rights, which the Bill now constrains.
2. Revenue dependence: Mining was 84.9% of Jharkhand’s non-tax revenue in 2024-25.
3. Mineral-rich states hit: States holding large mineral reserves lose an expected revenue stream.

What is the Centre’s justification?

1. Uniform rates: The government argues uniform mineral rates prevent a patchwork of state levies.
2. No revenue loss claim: The Centre states that states retain powers over minor minerals.
3. Investment climate: Predictable levies are framed as protecting mining-sector investment.

What are the major debates surrounding it?

1. Tax versus royalty: The dispute turns on whether a levy on minerals is a tax or a royalty, which the 2024 ruling addressed.
2. Tribal concerns: Mineral belts overlap with Scheduled Areas, raising questions of local benefit-sharing.
3. Divisible resource control: Centralising mineral levies shifts fiscal power toward the Union.

Conclusion

The amendment centralises control over mineral taxation soon after the Supreme Court affirmed states’ taxing power. The immediate stage is enactment, with a likely constitutional challenge the next development.

Back2Basics

Constitutional Framework Governing mineral taxation

1. Entry 50, State List: Taxes on mineral rights, subject to Parliament’s limitations relating to mineral development.
2. Entry 54, Union List: Regulation of mines and mineral development declared expedient in public interest.
3. Article 246: Distributes legislative power between Union and states via the Seventh Schedule.

What did the Supreme Court hold in 2024?

The Mineral Area Development Authority v. SAIL judgment is the constitutional backdrop to the 2026 amendment. The 9-judge Constitution Bench, by 8:1 majority, held that royalty is not a tax and that States have legislative competence to tax mineral rights under Entry 50, State List. It also recognised the States’ power to tax mineral-bearing land under Entry 49, State List.

• Royalty ≠ Tax: Royalty paid under the MMDR Act is consideration for the right to extract minerals and is distinct from a tax.
• State Taxing Power: States can impose taxes on mineral rights under Entry 50, List II, subject to limitations imposed by Parliament.
• Mineral-Bearing Land: States can also levy taxes on land under Entry 49, List II.
• MMDR Limitation: The Court held that the MMDR Act, as it then stood, did not impose a limitation on the States’ taxing power.

Why is the 2026 Amendment significant?

The 2026 amendment seeks to alter this position prospectively by restricting State taxation of mineral rights and mineral-bearing lands, except in accordance with conditions or restrictions prescribed by the Centre

PYQ Relevance

[UPSC 2025] Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?

Linkage: The 2025 PYQ examines the evolution of Centre–State financial relations and their impact on fiscal federalism. The Bill raises fresh concerns over the Union’s role in restricting States’ mineral revenue powers and fiscal autonomy.