MMDR AMENDMENT ACT 2026: STATE TAXATION RIGHTS, AND FISCAL FEDERALISM

Why In News?

The passage of the Mines and Minerals (Development and Regulation) Amendment Act, 2026 by Parliament has triggered an intense constitutional and fiscal conflict between the Central Government and mineral-producing states. 

What Is The Mines And Minerals (Development And Regulation) Act?

The Mines and Minerals (Development and Regulation) Act, 1957 is the primary federal legislation governing the mining sector in India. 

• Enacted under Union List (List I) Entry 54 of the Seventh Schedule, it establishes the legal regime for granting mineral concessions, regulating mine operations, and fixing statutory royalty rates across the country.

Regulation of Major Minerals: Major minerals—including coal, iron ore, bauxite, copper, limestone, and manganese—are regulated directly through central frameworks under the statute to ensure national resource security, standardized conservation, and price stability.

Role of State Governments: Legal owners of subsoil minerals within their territorial boundaries. 

• States execute mining leases, collect statutory royalties, receive auction premiums, administer District Mineral Foundation (DMF) funds, and manage surface land rights. 

• State authority over minor minerals (such as building stones, gravel, and sand) remains fully autonomous.

Role of Central Government: Regulatory authority over major minerals. It frames concession rules, sets maximum statutory royalty schedules under Section 9 and Section 9A (dead rent), and determines national policy mandates.

Mineral Auctions and Mining Leases: Following statutory amendments in 2015, the allocation of mining leases and composite licenses for major minerals was shifted from discretionary grants to mandatory transparent e-auctions. 

• Under the MMDR Amendment Act, 2023, the Union expanded e-auctions by inserting Part D of Schedule-I to empower the Central Government to exclusively auction 24 critical and strategic minerals (such as lithium, cobalt, nickel, and graphite) under Section 11D.

2026 Amendment 

• Wider Regulatory Scope: Expands the scope of Section 2 by adding “mineral-bearing lands” to the central regulatory framework.

• New Section 9D: States cannot introduce fresh taxes, cesses or surcharges on mineral rights or mineral-bearing land when the levy is linked to mineral value, quantity or royalty.

• Restriction on Land-Based Levies: States cannot use mineral value or mineral output as a basis for certain land-related taxation without complying with the framework prescribed by the Centre.

• Union Conditions: Any state levy covered by Section 9D must follow the conditions, limits or requirements specified by the Central Government.

• Past Uncollected Dues: Invalidates certain uncollected or unpaid state mineral tax demands existing before the amendment, involving an estimated ₹1.5 lakh crore–₹2 lakh crore.

• No Refund for Past Collections: Levies already collected and deposited with state governments before the law came into force are not required to be refunded to mining companies.

Why Is The Centre Supporting The Amendment?

Uniform Mineral Taxation: The Ministry of Mines advocates a standardized national tax framework to prevent fragmented, varying state cesses that create extreme regional price distortions for industrial raw materials.

Reduction in Mining Costs: Cumulating central royalties, DMF contributions, National Mineral Exploration Trust (NMET) fees, and varying state cesses significantly inflates primary manufacturing input costs.

Prevention of Multiple Levies: The amendment prevents states from layering cascading surcharges on top of standard statutory royalties and auction premiums.

Greater Tax Predictability: Investors in capital-intensive, multi-decade mining projects require long-term fiscal certainty before committing capital.

Prevention of Retrospective Levies: The Union sought to shield public sector undertakings (PSUs) and private corporations from sudden historical tax liabilities estimated at ₹1.5 lakh crore to ₹2 lakh crore stemming from the post-2024 judicial recoveries.

Competitiveness of Domestic Minerals: Excessive subnational taxation makes domestic raw materials more expensive than imported commodities. India imported minerals valued at ₹10,12,529 crore in FY 2025-26, highlighting the need for cost competitiveness.

Reduction in Import Dependence: Centralized tax predictability aligns with the National Critical Mineral Mission (NCMM) (launched on January 29, 2025, with an outlay of ₹16,300 crore) to secure domestic supply chains for electric vehicles, solar cells, and advanced defense manufacturing.

Why Are Mineral-Rich States Opposing The Amendment?

• Loss of Tax Revenue: The statutory bar on state cesses strips mineral-rich regional treasuries of their primary non-tax revenue growth driver.

• Loss of Fiscal Autonomy: The statute forces states to surrender future fiscal option value, making subnational tax policy dependent on central executive conditions.

• Restrictions on State Taxation: States argue that using a general regulatory entry (List I Entry 54) to extinguish explicit state taxing powers under List II Entry 49 and Entry 50 circumvents constitutional design.

• Impact on Mineral-Bearing Land: By redefining "mineral-bearing lands" under central regulatory control, the statute infringes on state jurisdiction over land under State List Entry 18 and Entry 49.

• Cancellation of Past Dues: Extinguishing validated retrospective dues eliminates billions in anticipated revenues that states had earmarked for capital spending and social safety nets.

• Concern over Federalism: Opposition states view the amendment as an unconstitutional central preemption of subnational fiscal sovereignty.

• Impact on Tribal and Mining-Affected Areas: Mining activities create heavy local externalities—including environmental degradation, air/water pollution, deforestation, and displacement of indigenous communities. States rely on land levies to fund ecological restoration and local welfare programs.

What Are The Major Challenges?

Centre-State Conflict: The legislative override of the 2024 MADA verdict has deepened political and constitutional friction between the Union and subnational governments.

Constitutional Litigation: States including Karnataka, Telangana, Himachal Pradesh, and Kerala have filed writs in the Supreme Court, challenging Section 9D as ultra vires the Constitution.

Revenue Loss: Mineral-producing belts face unbridgeable budget deficits due to the cancellation of ₹1.5 lakh crore to ₹2 lakh crore in historical tax claims.

• Example: Jharkhand has repeatedly raised claims against central public sector undertakings (primarily Coal India subsidiaries) for approximately ₹1.36 lakh crore in unpaid land-compensation, common-cause royalty revisions, and mineral dues. 

Regulatory Uncertainty: Ongoing legal challenges create temporary uncertainty for mining operators awaiting final constitutional clarity on state tax claims.

Mining Cost Concerns: Industry groups worry that if the Supreme Court strikes down Section 9D, states will immediately enforce uncoordinated cesses, escalating raw material costs.

Local Development Concerns: Restricting subnational cesses reduces the fiscal capacity of states to internalize environmental and social costs in tribal mining districts.

Weak Consultation Mechanisms: The absence of a dedicated intergovernmental forum for mining taxation forced states to litigate rather than negotiate.

Balancing National Interests and State Autonomy: The primary policy challenge is reconciling national resource security and uniform industrial pricing with state fiscal self-reliance.

Way Forward

Statutory Tax Ceilings in Place of Central Vetoes: Parliament should amend Section 9D to establish transparent, formulaic upper ceilings (e.g., capping total state cesses at 10% to 15% of statutory royalty) rather than requiring case-by-case Union approval, preserving state fiscal room while ensuring cost predictability for investors.

• Example: Statutory Fiscal Cap Framework / MMDR Reform Proposal, establishing predictable, statutorily defined tax ceilings under List II Entry 50 to prevent excessive regional tax variation while securing subnational non-tax revenues.

Phased Transitional Compensation Framework: The Central Government should institute a 5-year transitional grant mechanism to compensate highly dependent mineral states for extinguished retrospective arrears, safeguarding welfare spending.

• Example: National Mineral Revenue Compensation Scheme / GST Compensation Model Adaptation, disbursing formula-based transitional grants to high-dependence states (e.g., Jharkhand, Odisha) over a 5-year horizon to offset lost retrospective dues.

Institutionalization of a Natural Resources Council: India should establish a statutory National Natural Resources Council (NNRC), modeled on the GST Council, bringing together Union and State Finance and Mines Ministers to collaboratively decide royalty revisions, auction terms, and environmental mitigation levies.

• Example: National Natural Resources Council (NNRC) / Inter-State Executive Model, a standing constitutional/statutory body conducting bi-annual reviews of mining royalty rates, DMF utilization rules, and subnational cesses.

Balancing Mineral Competitiveness and State Fiscal Autonomy: Harmonizing national energy transition goals with subnational fiscal self-reliance is essential to sustain long-term federal stability.

Conclusion

The MMDR Amendment Act, 2026 secures industrial raw material cost predictability by centralizing mineral taxation controls, but it curtails state fiscal autonomy established under the landmark MADA (2024) Supreme Court ruling.

Source: THEHINDU