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New advance rulings body to ease taxing lives of foreign investors

Today's Budget has introduced measures to give greater certainty to advance tax rulings to avoid litigation, which has been cautiously welcomed by Indian tax lawyers as appealing particularly to foreign investors.

The Authorities for Advance Rulings for both direct and indirect taxes are to be merged into one entity and given greater powers to issue definitive guidance.

"This is something which could be path breaking," said Amarchand Mangaldas tax partner Aseem Chawla.

"The government realised that the foreign investor community is not happy with the way tax matters are carried out," he said. "As a respite amendments will be made to the scheme of the act, which talks of constituting a dispute resolution panel."

Khaitan & Co tax partner Sanjay Sanghvi said that the change was significant to foreign investors and a "very, very positive step". He explained that under the new rules, advance rulings by the tax department will be binding to a greater extent on the tax office's final assessment.

"The government wants certainties and foreign investors will know the tax liability well in time. The intention is to avoid unnecessary litigation," he explained.

However, he added that it also remained to be seen how the rules are implemented in practice and whether the advance rulings by the body are willing to take into account objections to their decisions.

Today's Budget has also stung lawyers by making legal services taxable for the first time and has set out the tax position of firms wanting to convert to limited liability partnerships (LLP).

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