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Business opportunities in India

Mining and minerals industry in India is one of the sectors which attracts the highest Foreign Direct Investment (FDI). India attracted foreign direct investment (FDI) worth $729 million in the mining sector between April 2007 and December 2010.

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India has an estimated 85 billion tons of mineral reserves remaining to be exploited. Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, cobalt, silver, tin etc. There is also scope for setting up manufacturing units for value added products During the April-December period of the current fiscal, Karnataka received the highest FDI of $31.75 million, followed by Maharashtra at $28.28 million.

In the past four years, the highest FDI inflow of $378.62 million was reported by the RBI office in Kolkata covering West Bengal, Sikkim and Andaman and Nicobar Islands.

Replying to another query, Mr Patel said the mining and quarrying sector contributed 2.52 per cent to the Gross Domestic Product (GDP) at current prices in 2009-10.

New mining policy likely to be unfolded soon by the ministry of mines is set to attract a foreign direct investment (FDI) of INR5 trillion within five to six years of introduction. The mining sector in India is poised for growth under the realm of foreign investment.

FDI up to 100 per cent is allowed in exploration, mining, mineral processing and metallurgy under the automatic route for all non-fuel and non-atomic minerals including diamonds and mineral stones.

For mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals( Development & Regulation) FDI is allowed up to 100% through automatic rout.

For Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under and subject to the provisions of Coal Mines (Nationalization) Act, 1973 FDI is allowed up to 100% through automatic rout.

Setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing FDI allowed up to 100% through automatic rout.

Mining and mineral separation of titanium bearing minerals & ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957) FDI is allowed upto 100% through automatic rout.

Policy

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.

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