As India prepares for the release of a populist Budget on Friday expected to favour the small man, or aam admi, those at the other end of the spectrum - executives running domestic companies and multinationals in the country - are braced for bad news.

Tax consultants say the Budget could contain an initiative aimed at bringing mergers and acquisitions by offshore companies that own Indian assets under the tax net, a step some fear could cost multinationals billions of dollars.

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The move comes amid increasingly aggressive efforts by the tax department to pursue what some companies complain is the most liberal interpretation of the country's loosely defined tax rules in a bid to increase revenues.

"We haven't seen the kind of activism in the past 10-15 years that we've seen in the last 2-3 years," says Gaurav Taneja, national tax director and partner at Ernst & Young.

The Indian revenue department did not return calls on Wednesday.

Any complaints from corporations affected by such cases, which include Britain's Vodafone and General Electric of the US, are likely to fall on deaf ears.

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Government revenue growth has been one of the great success stories of India's Congress party-led ruling coalition, estimated by HSBC at 27 per cent over a year earlier in the fiscal year ending March.

But tax officials clearly believe they have more work to do. As India's economy becomes more global, companies are conducting an increasing number of complex offshore transactions and the tax department does not want to miss out on the action.

The most prominent case is a government claim for an estimated $2bn (euro 1.3bn, pound 1bn) in capital gains tax that it says Vodafone should have withheld on behalf of tax authorities when it acquired a local mobile operator, Hutchison Essar, from Hutchison, the Hong Kong group, last year.

Under the transaction, a Dutch company owned by Vodafone paid $11bn to a Cayman Island entity owned by Hutchison for another Cayman Island company that indirectly held a controlling stake in Hutchison Essar.

The government argues that since Hutchison Essar's operating assets were based in India it is justified in trying to tax the transaction.

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Lawyers argue that such overseas transfers of "beneficial ownership" are not taxable because the exchange of the "capital asset", the shares, took place in another jurisdiction.

"No other country in the world that we're aware of would deem this transaction taxable in their country," said one person familiar with Vodafone's case.

Another potential case involves Genpact, a back-office outsourcing centre set up by General Electric. It became independent in 2004 when GE sold a 60 per cent stake to the private equity firms Oak Hill Capital Partners and General Atlantic.

GE said it had not received any direct correspondence from the tax department. Instead, the tax office has written to Genpact India seeking information about the transaction to see whether it could be taxed.

Adding to concern over the tax department's harder line on mergers and acquisitions is a separate wave of transfer pricing cases, under which authorities seek to determine the profit arising from transactions between a company in India and related offshore parties in order to tax it.

Lawyers argue that the law does not provide a systematic methodology or guidelines for determining transfer pricing, which they claim is contributing to arbitrary decision-making by tax officers and the courts.