UPDATE 1-India should scrap retrospective asset tax - govt panel

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NEW DELHI, Oct 9 (Reuters) - India should scrap a law that taxes asset transfers retrospectively, a government panel recommended in a draft report that could save Britain's Vodafone

$2 billion.

Prime Minister Manmohan Singh set up the panel to look at a series of tax measures introduced this year that were criticised by global business groups and dampened investor sentiment in India.

The panel said in the report that government should, as a matter of policy, avoid anything that "comes as a surprise" to the taxpayers.

The decision to tax indirect asset transfers retrospectively came only months after the Supreme Court ruled that mobile phone operator Vodafone was not liable for $2 billion dollars in tax and interest on the 2007 purchase of the Indian assets of Hutchison Whampoa .

The government panel's draft report recommended that the rules be applied only to future indirect asset transfers, which would let Vodafone off the hook.

The panel also suggested that no interest should be charged if the government did decide to apply tax retrospectively - a move that could potentially lower Vodafone's tax liability.

The panel will wait for public feedback on its recommendations before publishing a final report.

(Reporting by Rajesh Kumar Singh; Writing by Frank Jack Daniel; Editing by David Goodman)

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Keywords: INDIA TAX/