Royalties and the States' Right to Tax Minerals

How mining companies pay royalties to states, and how a 2024 Supreme Court ruling confirmed states' power to tax mineral rights and mining land.

When companies extract minerals, they pay royalties to the government that owns the minerals, usually the state.

Royalties

Royalty rates are set by the central government for most major minerals, as a percentage of mineral value or a fixed amount per tonne.
Royalties are a major source of revenue for mineral-rich states like Odisha, Jharkhand, Chhattisgarh and Rajasthan.

Other payments

Auction premiums, the revenue share bid in auctions.
Contributions to District Mineral Foundations.
Contributions to the National Mineral Exploration Trust.

The 2024 Supreme Court ruling

A long-running question was whether royalty is a tax and whether states could levy additional taxes on mining. In July 2024, a nine-judge bench of the Supreme Court ruled by majority that:

Royalty is not a tax.
States have the power to tax mineral rights and mineral-bearing land, subject to limits set by Parliament.

The Court later allowed states to recover past dues in instalments from 2005 onward, with interest and penalties waived.

Why it matters

Mineral-rich states gain revenue.
Mining companies and industries using minerals may face higher costs.
Centre-state relations: the ruling strengthened states’ fiscal powers.

Balance

Policymakers must balance state revenue, competitiveness of mining and downstream industries, and fair sharing of resource wealth.

The new state levy

After the ruling, a mineral-rich state considers a tax on mining land. Mining companies warn of higher costs for steel and power, while the state argues it needs funds for development in mining districts.

Thinking royalties are the only payment miners make

Miners also pay auction premiums, DMF contributions and potentially state taxes.

Key takeaways

Miners pay royalties to states, with rates set by the centre.
Auction premiums and DMF contributions add to payments.
In July 2024, the Supreme Court ruled royalty isn't a tax and states can tax mineral rights.
The ruling boosted mineral-rich states' fiscal powers.