Non-residents entities who have invested in Indian projects through local resident entities find themselves in a relentless debate with the Indian tax authorities. The issue at the heart of this debate is whether Fair Market Value (‘FMV’) norms apply to investments made at premium by a non-resident through a resident entity in India. These are essentially the cases where a large number of overseas investors pool in their resources to optimise risk exposure and invest into a corporate entity in India that acts as a channel for downstream investments into project specific SPVs, typically in infrastructure projects. As per section 56(2)(viib) of the Indian Income Tax Act, 1961, when such investment is received at the level of Indian corporate entity, there is no problem as the investment is received directly from non-residents.
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