Mining amendment is unfair to States

Polity & Federalism · 17 September 2026 · Based on The Hindu (original report)

2-minute summary

The Mines and Minerals (Development and Regulation) (MMDR) Amendment Act, 2026, has sparked intense debate over fiscal federalism in India. At the core of the controversy is Section 9D, which restricts State Governments from levying taxes, cesses, or other charges on mineral rights or mineral-bearing land unless they conform to conditions prescribed by the Central Government. The Centre argues this measure ensures a predictable, uniform tax environment to attract long-term private investment. However, mineral-rich states like Odisha, Jharkhand, and Chhattisgarh argue that this severely curtails their fiscal autonomy. This amendment directly challenges the 2024 landmark Supreme Court ruling in Mineral Area Development Authority (MADA) vs. SAIL, where a nine-judge bench held that royalty is not a tax and affirmed states' constitutional powers to tax mineral-bearing land under Entry 49 of the State List. Opponents argue that states bearing the heavy environmental, social, and infrastructural costs of mineral extraction must retain a meaningful stake in the economic value generated.

Why it's in the news

The passage of the MMDR Amendment Act, 2026, and specifically its controversial Section 9D, has triggered widespread protests by political parties and state governments in mineral-rich states like Odisha and Jharkhand, who argue the law unconstitutionally strips states of their taxation powers.

Background and context

The distribution of legislative powers over mines and minerals in India is governed by the Seventh Schedule of the Constitution. While Entry 23 of the State List gives states power over mineral development, it is subject to Entry 54 of the Union List, which allows the Parliament to regulate minerals in the public interest. Furthermore, Entry 50 of the State List allows states to tax mineral rights, subject to limitations imposed by Parliament. For decades, a legal dispute persisted over whether 'royalty' paid by miners constitutes a tax, which would limit states' additional taxing powers. In July 2024, a historic 9-judge bench of the Supreme Court in Mineral Area Development Authority (MADA) vs. SAIL clarified that royalty is not a tax and validated the states' power to tax mineral rights and mineral-bearing land under Entry 49 (taxes on lands and buildings). The MMDR Amendment Act, 2026, was subsequently enacted by the Union to limit the fiscal fallout of this judgment on the mining industry by introducing Section 9D.

Constitutional provisions

• Seventh Schedule, List II (State List), Entry 49 — Empowers State legislatures to levy taxes on lands and buildings, which the Supreme Court ruled includes mineral-bearing land.
• Seventh Schedule, List II (State List), Entry 50 — Empowers States to levy taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
• Seventh Schedule, List I (Union List), Entry 54 — Empowers the Union to regulate mines and mineral development to the extent declared by Parliament by law to be expedient in the public interest.

Committees and reports

• NITI Aayog's Fiscal Health Index — Highlighted the strong performance of mineral-rich states like Odisha and Chhattisgarh in mobilizing non-tax revenue through mining receipts.

Government schemes

• Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) — Implemented through District Mineral Foundations (DMFs) to channel mining-affected areas' revenues into local developmental and environmental rehabilitation projects.

Previous UPSC questions on this theme

• Mains GS-2 2023 — Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

Mains practice: Analyze the constitutional and federal challenges arising from the introduction of Section 9D in the MMDR Amendment Act, 2026, in light of the Supreme Court's 2024 ruling on mineral taxation.

The introduction of Section 9D in the MMDR Amendment Act, 2026, marks a significant flashpoint in Indian fiscal federalism, directly countering the judicial precedent set by the Supreme Court.

**Constitutional and Federal Challenges:**

• **Erosion of State Taxation Powers:** Under Entry 50 of the State List, states have the power to tax mineral rights, subject to parliamentary limitations. However, Section 9D goes further by restricting states from taxing mineral-bearing land. This directly encroaches upon Entry 49 of the State List (taxes on lands and buildings), which is an exclusive state domain free from parliamentary limitations.

• **Neutralizing Judicial Precedent:** In the 2024 *MADA vs. SAIL* case, a nine-judge Supreme Court bench ruled that royalty is not a tax and affirmed states' rights to tax mineral-bearing lands. Section 9D effectively bypasses this ruling, raising critical questions about the separation of powers and legislative overreach.

• **Asymmetric Fiscal Burden:** Mineral-rich states like Odisha, Jharkhand, and Chhattisgarh bear the localized environmental, social, and infrastructural costs of extraction. Restricting their ability to levy cesses deprives them of vital resources needed to mitigate these externalities, as highlighted by NITI Aayog's recognition of mining receipts in state fiscal health.

• **Impact on Cooperative Federalism:** By centralizing control over mineral-related levies to create a uniform investor regime, the amendment prioritizes ease of doing business over the financial autonomy of states, straining cooperative federalism.

**Conclusion:**

While creating a predictable tax regime is essential for attracting long-term mining investments, it should not come at the cost of constitutional federal balances. A collaborative mechanism, such as a GST-style federal council for mineral taxation, could help balance investor predictability with the fiscal sovereignty of resource-bearing states.

Prelims practice questions

Q1. With reference to the Seventh Schedule of the Constitution of India, which of the following entries falls exclusively under the State List (List II)?

1. Entry 54: Regulation of mines and mineral development under the control of the Union
2. Entry 49: Taxes on lands and buildings
3. Entry 50: Taxes on mineral rights subject to any limitations imposed by Parliament
4. Both B and C

Answer: B. Entry 49 (Taxes on lands and buildings) is an exclusive State subject. Entry 50 (Taxes on mineral rights) is in the State List but is explicitly subject to limitations imposed by Parliament by law. Entry 54 is in the Union List.

Q2. Consider the following statements regarding the landmark 2024 Supreme Court judgment in Mineral Area Development Authority (MADA) vs. Steel Authority of India (SAIL):

1. The Court ruled that royalty is not a tax and affirmed the States' power to tax mineral-bearing land.
2. The Court held that mineral-bearing land cannot be taxed under Entry 49 of the State List.
3. The Supreme Court ruled that royalty payable on minerals is a form of tax.
4. The Court declared Entry 50 of the State List unconstitutional.

Answer: A. In 2024, a nine-judge Bench of the Supreme Court held that royalty is not a tax and recognized the States' legislative power to tax mineral-bearing land under Entry 49 of the State List.

Q3. Which section of the MMDR Amendment Act, 2026, restricts State Governments from imposing taxes, cesses, or other levies on mineral rights or mineral-bearing land except in accordance with Central guidelines?

1. Section 9A
2. Section 9D
3. Section 10B
4. Section 21

Answer: B. Section 9D of the MMDR Amendment Act, 2026, restricts State Governments from imposing taxes, cesses, or other levies on mineral rights or mineral-bearing land except in accordance with conditions prescribed by the Central government.

Revision flashcards

• Which entry in the State List (List II) empowers State legislatures to tax mineral rights? Entry 50 of List II (subject to any limitations imposed by Parliament by law).
• What did the Supreme Court rule regarding 'royalty' in the 2024 MADA vs. SAIL case? The 9-judge bench ruled that royalty is NOT a tax, and states retain the power to tax mineral-bearing land.
• Which constitutional entry gives the Union power over the regulation of mines and mineral development? Entry 54 of the Union List (List I).
• What is the primary objective of Section 9D of the MMDR Amendment Act, 2026? To restrict states from levying taxes/cesses on mineral rights or mineral-bearing land without Central approval, aiming to create a predictable tax environment.
• Under which State List entry did the Supreme Court validate states' power to tax mineral-bearing land? Entry 49 of List II (Taxes on lands and buildings).