For exploration and mining of diamonds and precious stones FDI is allowed upto 100 % under automatic route
For exploration and mining of gold and silver and minerals, metallurgy and processing FDI is allowed upto 100 % under automatic route
Press Note 18 (1998 series) dated 14/12/98 would not be applicable for setting up 100 % owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and/or the particular mineral
In India, the Mining and Minerals (Regulation and Development) Act 1957 (“MMRD”) lays down the legislative framework for the regulation of mines and development of all minerals. Mining rights are granted under mining leases issued by local State Governments, and for some minerals, the Central Government. The terms of mining leases are prescribed by specific statute and include various provisions, for example, that the lessee shall not enter into any reserved forest areas and that the lease shall not be transferred, sublet or made subject to the control of a person other than the lessee, without prior consent of the relevant State Government, and for some minerals, the Central Government.
The relevant regulations in force under the MMRD are the Mineral Concession Rules 1960, which provides for the application process to be made to the State Government for the grant of a mining lease, and the Mineral Conservation and Development Rules 1988, which provides guidelines for ensuring that the mining is carried out on a scientific basis, while at the same time conserving the environment. The maximum period for which a mining lease is granted is 30 years and the minimum period is 20 years. Each period of renewal is also 20 years.
No mining lease can be granted to a private or public party without a mining plan approved by the Indian Bureau of Mines. Such a mining plan is valid for life of the mine lease period or until such time as mining activities deviate from the mine plan. A mining scheme must be submitted at five yearly intervals stating what mining activities have taken place on the lease area and details of the plan for the next five years. The holder of a mining lease is required to pay royalty [and/or] dead rent to the State Government at the rates specified under the MMRD. These rates are subject to amendment by Central Government.
Tax incentives for the mining industry
Indian companies are taxed in India for their income derived from anywhere in the world. Foreign companies are taxed in India for their income derived from their operations in India. However, the Indian Government offers a number of concessions to companies investing in the Indian mining sector. These concessions include:
Tax holidays
Mining companies operating in specified [backward] areas are entitled to a complete “tax holiday” for the initial period of five years from commencement of production and a partial tax holiday thereafter. The State of Orissa falls within the definition of a [backward] area.
Incentive for new venture:
Newly established mining companies are eligible for a deduction of 30 per cent of gross total income for 10 years subject to certain conditions. However, such incentives will not be available in case the benefit of tax holiday is availed.
Depreciation allowance:
The benefits of accelerated depreciation are available for tax purposes. As a result, the total amount of depreciation which is allowable as a tax deduction does not change but the company is allowed to make such deduction earlier in project’s life.
Deduction in respect of export turnover:
Deduction in respect of export turnover: Deduction of 100 per cent export income is granted for export of specified processed minerals and ores. To claim this deduction, the sale proceeds of exports must be brought into India in convertible foreign exchange within a specified time period.
Expenditure on prospecting, extraction and production of minerals:
Expenditure on prospecting, extraction and production of minerals: The expenditure incurred by an Indian company engaged in any operation relating to prospecting for, or extraction or production of any mineral during the five year period ending with the year of commercial production is allowed as a deduction from the total income to the extent of one-tenth of the amount of such expenditure. No deduction shall be allowed on the expenditure on the acquisition of site and other capital expenses on which depreciation is claimed.
Expenditure on scientific research:
Capital and revenue expenditure incurred by the assessee who himself carries on scientific research is allowed as a permissible deduction.
Expenses for environmental protection:
Amounts paid to approved association or institutions for programs of conserving natural resources are allowed as a deduction in the computation of taxable income.