Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The federal government specifies the royalty payments for each mineral and the state government collects the royalty on mining. Royalty in most cases is charged on an ad valorem basis as a percentage of the price notified by the government. Any enhancement to the royalty can only be made once every three years.
A mining rights holder is liable to pay either royalty or dead rent in respect of a mining area, whichever is higher. Dead rent is, therefore, meant to be paid when the mine is closed or is being under exploited. Dead rent is fixed by the federal government and is collected by the state. Any enhancement to the dead rent can only be done once in three years.
A rights holder has to pay a sum equal to 2 per cent of the royalty as a contribution to NMET. DMF contributions are to be fixed by the federal government but cannot exceed one-third of the royalty specified.
The rights holder may also have to pay, where applicable, surface rent to the surface rights owners or application fees for the licence or lease that are fixed by the federal government and collected by the state.
The taxes or levies differ in quantum and nature depending on the states. Principal taxes and duties applicable to mining industry are:
- direct taxes, such as corporate tax or minimum alternative tax;
- indirect taxes, such as custom duty, service tax, value added tax;
- stamp duty;
- water tax;
- forest-related taxes, such as forest tax (levied on forest produce removed from forest areas), compensatory afforestation charges (levied to promote afforestation and compensate for deforestation), net present value payments of forest land diverted for mining; and
- cess is also levied on mineral ores under various legislations.
What tax advantages and incentives are available to private parties carrying on mining activities?
Special deductions under Income Tax Act 1961 are allowed for prospecting of minerals. One-tenth of the expenditure on prospecting, extraction and production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income (subject to the timelines provided in the law). Export profits from specified minerals and ores are eligible for certain concessions.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
No. There is no legislation providing for tax stabilisation in India.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
No. However, it collects royalty, dead rent, tax and other fees from the licence holder.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Yes. Capital gains tax is applicable on transfer of licences or lease.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
As the mines will be owned and controlled by an Indian entity, no such differentiation exists.