Vodafone's shares took a knock yesterday following news that the telecoms giant may have to make a $2.2bn (£1.4bn) provision to offset a potential tax bill in India over its purchase of Hutchison Whampoa in 2007.

Vodafone is giving serious thought to making a provision for the charge in its next round of company accounts. Yesterday its chief financial officer Andy Halford told Bloomberg that it would make a decision on the matter by November.

The global mobile-phone operator has been embroiled in an epic legal spat with the Indian tax authorities, seeking tax for Vodafone's purchase of Indian interests of Hong Kong-based Hutchison Group through a Cayman Islands holding company in 2007. At the time the deal cost $11.2bn (£6.9bn).

India's Supreme Court threw the case out in January, in favour of Vodafone.

But the government hit back in an announcement in its March budget indicating the introduction of tough retrospective capital gains legislation which would net Vodafone along with a £1.3bn penalty.

Vodafone - which contributes £900m to the Indian economy - saw its shares drop by 1.3% yesterday.

India's recently appointed finance minister is said to be less than evangelical in his pursuit of the sum as his aims to ramp up foreign investment as its economy slows. Its PM has deferred implementing the retrospective legislation for three years on 'administrative grounds'.

Market watchers believe the two parties will reach an agreement at far less than the £1.4bn figure.