UPSC Mains
GS Paper II
MMDR Amendment Act, 2026
MMDR Amendment Act, 2026: Rebalancing Centre-State Fiscal Powers
Section 9D of the 2026 Act restricts States from taxing mineral rights, reigniting a decades-old fiscal federalism battle over Entry 50 of the Seventh Schedule
NEW PROVISION
Section 9D Limits State Mineral Levies
LANDMARK RULING
MADA v. SAIL (2024) — 9-Judge Bench
CONSTITUTIONAL BASIS
Entry 50, State List (Seventh Schedule)
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Context and the Constitutional Fault Line
- In August 2026, Parliament passed the MMDR Amendment Act, 2026, introducing Section 9D, which restricts States from imposing new taxes, cesses or levies on mineral rights and mineral-bearing lands, except as allowed by the Centre.
- The Act also cancels unpaid retrospective mineral tax demands, and follows the Supreme Court’s 2024 MADA v. SAIL judgment, which had expanded States’ power to tax minerals and allowed recovery of dues from 2005 onwards.
Seventh Schedule — Where the Conflict Lives
- Entry 54 (Union List): Centre can regulate mines and mineral development in the national interest — the basis of the MMDR Act.
- Entry 23 (State List): States can regulate mines, but subject to Union laws.
- Entry 50 (State List): States can tax mineral rights, but Parliament can impose limits.
- Entry 49 (State List): States can tax lands and buildings, including mineral-bearing lands.
Key point: Section 9D uses Parliament’s power under Entry 50 to limit State taxation of minerals — this is the crux of the current Centre-State standoff.
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The Legal Journey to 2026
- India Cement Ltd. v. State of Tamil Nadu (1989): The SC held that royalty is a tax, so States could not impose an additional tax on royalty — limiting State taxation powers.
- MADA v. SAIL (2024): A 9-judge Constitution Bench overruled this, holding royalty is not a tax but a payment for the right to extract minerals — recognising States’ Entry 50 power and allowing retrospective recovery from April 2005.
- MMDR Amendment Act, 2026: Parliament responded by using Entry 50 to impose limits on State taxation via Section 9D, and invalidates certain retrospective tax demands.
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Key Provisions of the Act
- Section 9D — Limits on State Levies: States cannot impose new taxes, cesses or levies on mineral rights or mineral-bearing lands — whether based on quantity, value or royalty — except as permitted by the Centre.
- Past Levies: Unpaid or uncollected retrospective levies are treated as invalid; amounts already paid will not be refunded.
- Section 13 — Central Government’s Role: The Centre can prescribe the conditions under which States may impose such levies.
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Why the Centre Acted: Arguments in Favour
Reducing Multiple Levies
Royalty, auction premium, dead rent and transit fees together raise mining costs and reduce project viability.
Unified Mineral Market
Divergent State taxes distort prices and supply chains, working against “One Nation, One Market.”
Protecting Critical Minerals
High levies on strategic minerals like graphite threaten the National Critical Mineral Mission and Atmanirbhar Bharat.
Encouraging Investment
Unpredictable, retrospective tax demands discourage the long-term capital mining requires.
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Federalism Concerns Against the Act
- Erosion of Fiscal Federalism: The 2026 Act is seen as reducing State fiscal autonomy recognised by the MADA judgment.
- Loss of Expected Revenue: Mineral-rich States like Odisha, Jharkhand, Chhattisgarh and West Bengal expected significant retrospective revenue, now cancelled.
- Centralisation of State Powers: Section 9D subjects State mineral levies to Central conditions, risking making Entry 50 ineffective in practice.
- Local Costs Ignored: Mineral-rich States also bear displacement, environmental damage and health costs from mining.
The core tension: Entry 50 gives States taxation power, but the 2026 Act gives the Centre much greater control over that very power — raising serious questions for fiscal federalism.
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Way Forward
Cooperative Federalism
Frame Section 13 rules through consultation with States, including forums like the Inter-State Council.
Fair Compensation
Create a transparent revenue-sharing mechanism for States losing expected retrospective revenues.
Strengthen DMFs
Ensure District Mineral Foundation funds are used transparently for mining-affected and tribal communities.
Balance Revenue & Viability
Adopt a uniform levy system that keeps mining competitive while protecting States’ legitimate revenue.
Judicial Clarity
A clear Supreme Court ruling on the scope of Parliament’s power under Entry 50 can settle the dispute.
Conclusion: The MMDR Amendment Act, 2026 is part of a long constitutional debate over Entry 50 — from India Cement (1989) to MADA (2024) and now 2026. The way forward is to balance national mineral security with State fiscal rights through cooperative federalism.
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Source: PIB
