Digging for gold
Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026, which expands the Union government's control over the extraction and management of minerals across states.
Odisha, one of India's most mineral-rich states (a major producer of iron ore, chromite, bauxite and coal), has flagged concerns that the amendment could affect the state's mineral-linked revenue streams — including royalty, auction premium and District Mineral Foundation (DMF) collections.
The amendment restricts states' ability to independently tax mineral rights and mineral-bearing land, permitting such levies only within conditions prescribed by central rules.
The change has reopened debate on Centre-State fiscal relations in the mining sector, given that several states had begun exploring additional mineral-rights taxation following a 2024 Supreme Court ruling.
Constitutional Basis: Entry 54 (Union List) vs Entry 50 (State List)
Mining sits at the intersection of Union and state powers under the Seventh Schedule read with Article 246. Entry 54 of the Union List empowers Parliament to regulate mines and mineral development "to the extent declared by Parliament by law to be expedient in the public interest" — the basis of the Mines and Minerals (Development and Regulation) Act, 1957. Entry 50 of the State List gives states power to tax mineral rights, but this power is explicitly made "subject to any limitations imposed by Parliament by law relating to mineral development."
Key Details
- Entry 54 is a regulatory entry (Union List, List I); Entry 50 is a taxing entry reserved for states (State List, List II).
- Because Entry 50 is textually subject to Parliament's Entry 54 limitations, Parliament can constrain state taxation of mineral rights through ordinary legislation — which is the constitutional route the 2026 amendment uses.
- The MMDR Act, 1957 is the principal central law occupying the regulatory field under Entry 54; states legislate mineral-rights taxation under Entry 50 within whatever limits Parliament sets.
The 2026 Amendment Bill uses Parliament's Entry 54 regulatory power to newly restrict how states exercise their Entry 50 taxing power on mineral rights and mineral-bearing land — the exact federal fault line Odisha and other mineral-rich states are contesting.
Mineral Area Development Authority v. Steel Authority of India (2024)
A nine-judge Constitution Bench of the Supreme Court held on 25 July 2024, by an 8:1 majority, that royalty paid under the MMDR Act is a contractual payment for the right to extract minerals and is not a tax — meaning states retain an independent power under Entry 50 to levy their own taxes on mineral rights and mineral-bearing land. The ruling overruled the seven-judge bench decision in India Cement Ltd. v. State of Tamil Nadu (1990), which had treated royalty as a tax and denied states this taxing power.
Key Details
- Decided by an 8:1 majority; Justice B.V. Nagarathna gave the sole dissent, cautioning that unrestricted state taxation could trigger a competitive "race to the bottom" among mineral-rich states.
- A subsequent order allowed states to recover past dues from 1 April 2005 onward, in staggered instalments without interest or penalty, starting 1 April 2026 — directly affecting states like Odisha with large accumulated dues.
- Mineral-rich states, Odisha prominent among them, had begun preparing to invoke this ruling to levy additional taxes on mining companies operating within their territory.
The 2026 Amendment Bill is widely read as a legislative response that narrows the taxing latitude states gained from this 2024 ruling, inserting a new provision that bars state levies on mineral rights unless permitted by Centre-framed rules — directly bearing on Odisha's expected additional mineral revenue.
District Mineral Foundation (DMF) and Auction Premium
The District Mineral Foundation, created under Section 9B of the MMDR Act (inserted by the 2015 amendment), is a non-profit trust set up in each mining-affected district to channel a share of royalty toward the welfare of persons and areas affected by mining. Separately, since mineral blocks began to be allotted via competitive e-auction (following the 2015 amendment), states also earn an auction premium — a percentage of mineral value bid by the winning company — on top of royalty.
Key Details
- DMF contribution is 30% of royalty for leases granted before 12 January 2015, and 10% of royalty for leases granted through auction after that date.
- Funds under DMF are spent per the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), launched 17 September 2015, covering drinking water, health, education, and livelihoods in mining-affected areas.
- Odisha, given its large iron ore, chromite, and coal output, is among the largest recipients of DMF and auction-premium revenue among Indian states.
While the government has stated that existing royalty, auction premium and DMF flows to states will continue unaffected, opposition voices in Odisha have argued the new central rule-making power over mineral-rights taxation could still constrain the state's ability to raise additional mining-linked revenue going forward.
- Entry 54 = Union List (mines regulation); Entry 50 = State List (tax on mineral rights), both under the Seventh Schedule, Article 246 of the Constitution.
- Mineral Area Development Authority v. Steel Authority of India (2024): 9-judge bench, 8:1 majority, royalty held not to be a tax; retrospective recovery from 1 April 2005 permitted in instalments from 1 April 2026.
- DMF royalty-share: 30% for pre-2015 leases, 10% for post-2015 auctioned leases; PMKKKY launched 17 September 2015.
- The MMDR Act's parent legislation dates to 1957; the auction-based allocation regime and DMF/NMET framework were introduced via the 2015 amendment.
- Odisha is among India's top producers of iron ore, chromite, bauxite and coal, making it one of the states with the largest fiscal stake in mineral-rights taxation and DMF/auction-premium revenue.