Mobile phone maker Nokia may have to pay over £300m to India's Department of Revenue after its factory in Chennai was raised by tax officials.
Finnish company Nokia said it was not given any reason for the raid. However it is reported that India's income tax department is looking to recover about 30bn Indian rupees ($545m, £340m, €417m) in tax payments.
"Nokia is fully cooperating with the local tax authorities to ensure they get the necessary information to help in their inquiry. As a global company, Nokia consistently fields a large and steady number of tax queries, audits and assessments," a company spokesperson told IBTimes UK.
"Nokia's commitment to being a good corporate citizen is firm and unwavering: we always observe applicable laws and rulings in the countries where we operate."
Nokia's shares declined more than 6 percent to €3.07 in Helsinki following the news, the impact of which was exacerbated by Credit Suisse's warning that Nokia's Windows-based smartphones will struggle to gain traction in 2013, amid stiff competition from Android-based devices and Apple's iPhone.
An active player in India's fast-growing handset market since 1995, Nokia established its factory in Chennai in 2006, and has long seen India as key to its future growth. The company is one of the market leaders in the price-sensitive country with its low and mid-range handsets proving consistently popular.
Nokia claimed a 22.2 percent share of the total 102.4 million mobile handsets shipped in India in the first half of 2012, according to a CyberMedia Research report.
The Chennai factory is one of the world's biggest phone-manufacturing facilities and it produces more than 20 models, including the Asha range of devices aimed at consumers in emerging markets.
The raid on Nokia's factory marks the latest stage in India's clampdown on perceived tax evasion by overseas companies, which is designed to narrow its vast fiscal deficit.
Earlier, telecom operator Vodafone received a notice from Indian tax officials stating that the UK-based company owed more than $2bn in taxes in connection with its purchase of a controlling stake in Hutchison Whampoa in 2007.
However the clampdown has drawn criticism from foreign investors and analysts, who claimed that the country's tax regime is confusing and will keep foreign companies away from investing in the country.